
Qass. 
Book. 



61sT Congress \ ctpivtat^t? /Document 

2d Session ] bi^JNAiH. | No. 575 



NATIONAL MONETARY COMMISSION 



The Banks of Issue 
in Italy 



BY 



TITO CANOVAI, F. S. S. 

Chief General Secretary of the Bank of Italy 
WITH AN ARTICLE BY 

CARLO F. FERRARIS 

Professor in the University of Padua 

AND 

The Text of the ItaHan Banking Law 




^'^^ 



Washington : Government Printing Office : 1911 



61ST Congress \ 
2d Sessio7i J 



SENATE 



Document 
No. 575 



V NATIONAL MONETARY COMMISSION 



The Banks of Issue 



in Italy 



BY 



7 



-p^^i 



TITO CANOVAI, F. S. S. 

M 

Chief General Secretary of the Bank of Italy 
WITH AN ARTICLE BY 

CARLO F. FERRARIS 

Professor in the University of Padua 

AND 

The Text of the ItaHan Banking Law 






Washington : Government Printing Office : 1911 






fc> 






NATIONAL MONETARY COMMISSION, 

Nel,.son W. Al,drich, Rhode Island, Chairman. 

Edward B. Vreeland, New York, Vice-Chair man. 
Julius C. Burrows, Michigan. John W. Weeks, Massachusetts. 

Eugene Hale, Maine. Robert \V. Bonynge, Colorado. 

Philander C. Knox, Pennsylvania. Sylvester C. Smith, California. 

Theodore E. Burton, Ohio. Lemuel P. Padgett, Tennessee. 

Henry M. Teller, Colorado. George F. Burgess, Texas. 

Hernando D. Money, Mississippi. Arsene P. Pujo, Louisiana. 

Joseph W. Bailey, Texas. Arthur B. Shelton, Secretary. 

A. Piatt Andrew, Special Assistant to Commission. 



hi 






CONTENTS 



Page. 

The Banks of Issue in Italy 5 

By Tito Canovai, F. S. S., Chief General Secretary of the Bank of Italy. 

The Italian Banks of Issue 205 

By Carlo F. Ferraris, Professor in the University of Padua. 

The Text of the Italian Banking Law 257 



The Banks of Issue in Italy 

BY 

TITO CANOVAI, F. S. S. 
Chief General Secretary of the Bank of Italy 



THE BANKS OF ISSUE IN ITALY. 

BY 

TITO CANOVAI, F. S. S. 

PREFACE 7 

Chapter I. — Origin of the Italian banks of issue 15 

II. — The association of the banks of issue 28 

III. — The abohtion of forced currency and its effects 43 

IV. — The Credit Foncier or realty credits of the Banca 

Nazionale nel Regno d' Italia 62 

V. — Excess of building at Rome — The difficulties of 

finance — Embarrassments of the Banca Romana . . 71 

VI. — The building crisis and banking subsidies 87 

VII. — Conditions of currency in 1890 — Mutual redemption 
of notes among the banks of issue — Schemes for 

banking reform 97 

VIII. — Failure of the Banca Romana and the crisis of 1893 108 
IX. — Examination of the banking act of August 10, 1893. . 115 
X. — Parliamentary committee of inquiry — Aggravation of 
the financial and economic situation — Financial and 
banking provisions of Minister Sonnino and their 

effect 129 

XI. — The military disaster in Africa and its conse- 
quences — The Rudini Ministry — New banking act 

proposed by Minister Luzzatti 149 

XII. — The disorders of 1898 — The commercial agreement 
with France — Excess of speculation — New ideas 
in the management of the Bank of Italy — Note- 
worthy improvement in the financial situation. . . . 161 
XIII. — The conversion of Italian rentes and its effect on the 
money market — ^The crisis of 1907 — Modifications 

of the banking act 171 

XIV. — The restoration of the banks of issue 180 

XV. — The progress of Italy from 1894 to 1908, in com- 
parison with England, France, Germany, Austria- 
Hungary, Spain, and Belgium 187 

XVI. — Conclusion . 201 



THE BANKS OF ISSUE IN ITALY. 



PREFACE, 



The stormy vicissitudes which the Italian banks of 
issue have passed through in the last half century make 
their history particularly interesting, because they show 
the inevitably ruinous effects of bad banking systems and 
of disregarding the strict standards by which institu- 
tions authorized to issue paper money should be rigor- 
ously governed. 

The history of Italian banks, whether in good or in 
evil, affords material from which may be deduced use- 
ful instruction. It shows the causes of disturbances of 
circulation and credit and points to the remedies. 

And yet, we may repeat, even in this regard there is 
nothing new under the sun; other countries, for the same 
causes and reasons had passed through these same vicis- 
situdes before Italy experienced them and had, like Italy, 
felt the pernicious effects of a wretched system of banks 
of issue or their bad government, since it is not possible 
to violate the fundamental laws that govern credit and 
circulation, or any other economic laws, without being 
obliged to suffer the disastrous consequences sure to 
follow. 

Indeed, the banking disasters of Italy may be con- 
sidered as typical repetitions of those which had already 
happened in other countries. What, for example, is 
the substantial difference between the large subsidies 



National M o nxt ar y Commission 

given by the Italian banks of issue, particularly the 
Banca Nazionale, to the building industry (and, in gen 
eral, to town and country property) and the disastrous 
application of the theory of John lyaw? And as for the 
paper circulation representing government debts, is this 
by chance an ItaHan specialty or invention? 

On the contrary, it must be stated with regard to this 
last point, that while the Italian Government has within 
a few years reimbursed the banks for the loans they had 
made it, and at present has in circulation only its notes, 
almost all governments are still to-day and probably 
always will be debtors to the banks of issue for large 
amounts, although some of them have their own notes 
in circulation as well. 

But the stormy vicissitudes of Italian banks are par- 
ticularly interesting, not only because of the various 
moral, political, and economic elements which caused them, 
each of which has a special character and furnishes the 
theme for a special study, but also, since being recent, 
they gain that greater importance possessed by things 
and events that are closer in time and space. 

In fact, the banking crises experienced by other coun- 
tries had come to be considered ancient history, and 
were almost forgotten. Besides, the opinion had pre- 
vailed for some time past that the examples of the 
ruinous effects of the bad regulation of banks of issue 
would prevent, up to a certain point, the repetition of 
past errors. 

It cannot be denied, of course, that banking crises 
have gradually become less frequent and less serious, in 
spite of the increased work that the banks of issue are 



The Banks of Issue in Italy 

obliged to do to satisfy the greater necessities of trade 
and the progressive growth of economic activity. On the 
one hand the complicated mechanism of banks and credit 
is at present developed, especially in countries that are 
more advanced economically, so as to reduce to its small- 
est proportions the use of metallic and paper money in 
circulation, by means of the extensive employment of 
other means of exchange and the enormous increase of 
clearing houses; while, on the other hand, the regulations 
relating to the issue of paper money have become more 
rigid and severe, thus diminishing the probability of the 
harmful expansion of the paper currency and the abuse of 
credit. 

What is more, the ease and promptness with which the 
market of one country can enter into business relations 
with markets of other countries and be assisted by them, 
and the solidarity which has come about among the 
great international financial powers, frequently operate 
with efficiency and speed to prevent crises or lessen their 
gravity, intensity, and duration. 

It is evident, however, that this help can be given only 
when it is a question of crises of a transitory nature, 
which do not destroy to the very foundations the eco- 
nomic and financial edifice of a country, since no real 
aid can be obtained when the crisis extends to all the 
vital organs of a country, and especially when the banks 
of issue, which represent the great motive power of eco- 
nomic life, are themselves injured and deranged, just as 
was the case in Italy in 1893. 

Indeed, the situation of these banks, as revealed 
in that year at the time of the failure of the Banca 



National Monetary Commission 

Romana, showed clearly that they were in a state of 
insolvency. 

And I should like to say here that in accepting the very 
flattering invitation sent me by the Honorable Senator 
Aldrich to write for the United States Monetary Commis- 
sion a report on the principal facts in the history of banks 
and credit in Italy, I have determined to treat them with 
all candor and to express with great frankness my critical 
opinion concerning them; and this not only because of 
due regard for historical accuracy and impartiality, but 
also because of a sentiment of patriotic pride. Truly, 
charitable omissions and clever concealments would not 
only not be in the least justified here by the desire to 
avoid injuring the credit of the country, now set on a solid 
basis, but they would take away from the picture of 
Italian banking crises the valuable effects of light and 
shade; they would strike out from the economic history 
of Italy pages full of instructive interest and at the same 
time valuable in showing the work accomplished in Italy 
by the Government, Parliament, and the banks of issue 
themselves in making possible the really amazing reform 
of the circulation of the country. 

And, on the other hand, is it not perhaps creditable to 
be able to gain salutary instruction from past terrors ? Is 
it not useful to show that the wisdom born of experience 
furnishes a safeguard against the danger of committing in 
future still graver errors ? 

For it seems almost inevitable that all countries must 
in these matters pay tribute to inexperience; that, espe- 
cially at the beginning of their political career, they must 
go through difficult ordeals in the midst of which they are 



lo 



The Banks of Issue in Italy 

battered and scarred. All countries have, in fact, passed 
through financial, economic, and monetary hurricanes; 
all have passed through — many are still passing through — 
the anxiety of financial deficits, for which they must 
provide either by seeking in forms apparently less unpop- 
ular new sacrifices for the taxpayers or else by increasing 
recklessly the amount of the public debt; all have been 
smitten by the scourge of forced currency. 

Italy should not, therefore, be reproached too harshly 
for not being able to profit by the experience of others 
and making the same mistakes that other countries had 
already made. This is especially true because at the time 
of its political unification Italy was destitute of every- 
thing, and had to attack and solve vast and difiicult 
problems which involved enormous expenditures. It had 
to organize the state executive, unifying the different 
systems in force in the various preexisting states; it had 
to provide for organizing an army and navy; for building 
railroads and completing public works made peculiarly 
costly by the special characteristics of the country, tra- 
versed from end to end as it is by the Apennine and Alpine 
ranges. Everything, then, had to be evolved from the 
existing confusion in all that related to credit, circulation, 
and financial-economic institutions in general. 

Even though in taking the first steps of its national exist- 
ence Italy was not able to advance rapidly and surely in 
the high-road, and if in accomplishing the immense work 
that presented itself the nation did not succeed in avoiding 
grave errors, it certainly deserves all due allowance, because 
the great good it has accomplished since then overcame the 
evil in such a manner as to make it disappear completely. 



II 



National Monetary C ommis s io 



n 



And in what particularly concerns the vicissitudes of 
banking, circulation, and credit in Italy it may indeed be 
affirmed that they would have been less stormy if from 
the time the country gained a political constitution it had 
been able to count upon the valuable aid of a single 
powerful bank of issue, a regulator of the circulation 
and a strong defense for the State and the people in 
moments of difficulty and crises. 

Adolphus Wagner, passing in review the virtues 
and defects of plurality and unity in the issue of paper 
money, has acknowledged that one of the advantages of 
unity consists in rendering greater service in times of 
crises, which constitutes "without doubt the greatest and 
most decisive advantage that a great central bank pre- 
sents in comparison with a number of small banks, 
especially in what concerns the right of issue." And he 
has also acknowledged that a great central bank can give 
strong support to the State and its finances in times of 
political crises, a thing which the smaller banks can not 
do, or at least can not do adequately, as it is proved by 
the comparison between what happened in France in 
1870-187 1 and in the United States in 1 861-1864; ^^^ 
we may now add, in 1907 also. 

To these and other most valid and truly conclusive argu- 
ments in favor of the unity of issue, the partisans of plural- 
ity are able to oppose and echo nothing but phrases as 
full of rhetoric as they are empty of content. They pro- 
test fiercely in the name of liberty against the establishing 
of odious monopolies, as if the unity of issue signified a 
monopoly in the exercise of credit, and as if it were not 
for the common interest to have a great institution as a 



12 



The Banks of Issue in Italy 

moderator of the currency, a watchful guardian against 
foreign and domestic enemies, and a ready aid in case of 
economic, financial, and monetary disturbances. 

Nevertheless, in spite of the fact that experience has 
shown, in a decisive way, the superiority of the unity of 
issue, there is perhaps nothing more difficult to bring 
about than this unity, as may be seen from the long strug- 
gle to prevent it in every country; in some of them it 
would not have come about even then without the impetus 
given by serious disasters of a political or economic char- 
acter. 

The difficulties arise not only from the prevalence of 
liberal standards which are entirely out of place in this 
matter, but still more from the obstinate resistance of the 
network of interests which have established themselves 
and grown up under the regime of plurality. 

Even Italy, which at the beginning of its political career 
certainly needed to create a sound organ of credit to satisfy 
more fully the economic needs of the country, could not 
bring itself to the point of settling the question in the way 
public interest demanded. 

Italy, although keeping three institutions, has also 
been able since then, through unity of laws and the work- 
ing together of the men concerned, to realize in substance 
the benefits of the unity of issue. Yet it should in 
all justice be stated that Italy would not have reached 
this point without the aid of an exceedingly serious 
and melancholy event, namely, the disastrous failure of 
the Banca Romana. 

It is easy to understand, therefore, how arduous the 
struggle must be in the United States to arrive at the 



13 



National Monetary Commission 

organization of a great central bank of issue, the necessity 
of which has been made evident by former and recent 
disasters. 

However, the active investigation which is being pursued 
by men of courage with lofty patriotic purpose gives 
assurance that the fight will end in the triumph of the 
good cause — an outcome which Europe joins in earnestly 
wishing for America. The sincerity of this wish the 
Americans can not question, since it is not entirely disin- 
terested, as the difficulties of the American money market 
have a reflex action on European markets, causing them 
periodical disturbances. 

Rome, January, igio. 

Tito Canovai. 



H 



THE BANKS OF ISSUE IN ITALY. 



Chapter I. 

THE ORIGIN OF THE ITAWAN BANKS OF ISSUE. 

No country, perhaps, presents such a diversity and 
variety as Italy of banks originally organized or after- 
wards authorized to issue bank notes. This is due par- 
ticularly to the historical subdivision of the country into 
various States; these had their own institutions, which 
were successively united to others, and each of these had 
different characters, prerogatives, and privileges. 

To outline briefly, therefore, the origins of the Italian 
banks of issue is not simply to satisfy historical curiosity ; 
it is, in many cases, to give at the same time the reasons 
for the vicissitudes through which these banks passed 
and to add a valuable contribution to the study of the 
regulation of the institutions to which is intrusted the 
most delicate function of issuing paper money. 

Just as the Bank of Italy, created in virtue of the law 
of August ID, 1893, was made up of the fusion of three 
preexisting banks — that is to say, the Banca Nazionale 
nel Regno, the Banca Toscana, and the Banca Toscana 
di Credito per le Industrie e il Commercio — so, with the 
exception of the last, the two other banks, as well as the 
banks of Naples and Sicily, still in existence, resulted 
from the fusion of smaller institutions. 

39781°— II 2 15 



National Monetary Commission 

The Banca Nazionale nel Regno, the biggest of all, 
grew from the union, in the year 1849, of the Banca di 
Sconti, Depositi e Conti Correnti, located at Genoa, 
with the Bank of Turin, each created for a period of 
twenty years, with letters patent from the governor of 
the Sardinian States, the first on March 16, 1844, the 
second October 16, 1847. Each bank had a capital of 
4,000,000 lire, divided into 4,000 shares at 1,000 lire each. 
The two banks were authorized to carry on banking 
operations, and also to issue notes payable at sight and 
to bearer up to three times the amount of the metallic 
money in the coffers. 

By a legislative decree dated September 7, 1848, the 
Government of the Sardinian States asked the two banks 
for a loan of 20,000,000 lire, freeing them from the obli- 
gation of redeeming notes in coin. 

By the agreements stipulated September 26 and Octo- 
ber 3, 1849, approved with the reservation of being 
converted into a law by royal decree of December 14, 
1849, the fusion was arranged of the banks of Genoa 
and Turin, and a bank was created which took the name 
of the Banca Nazionale. 

The capital was then 8,000,000 lire, divided into 8,000 
shares of 1,000 lire each. The bank was to have the 
grant for a period of thirty years and the privilege of 
issuing notes up to the amount of three times the metallic 
reserve. 

The agreements and the royal decree were ratified by 
the law of July 9, 1850, which provided by the issue of 
state obligations to pay back whatever still remained of 
the loan of 20,000,000 lire obtained from the two banks 



16 



The Banks of Issue in Italy 

of Genoa and Turin, and arranged that the Banca Nazionale 
should within three months reduce its circulation to 
22,000,000 lire, with the privilege of raising it afterwards to 
a maximum of 32,000,000 lire, while it gradually withdrew, 
with the reimbursement of the loan, the corresponding 
amount from circulation. 

The capital of the bank was raised from 8,000,000 lire to 
32,000,000 lire by virtue of the law of June 11, 1852, which 
stipulated that the bank should pay out to the State 
15,000,000 lire in return for treasury bonds and certificates 
of government rentes. 

From 32,000,000 lire the capital was raised to 40,000,000 
lire by the new charter of the bank, approved by legis- 
lative decree of October i, 1859. In the charter it was 
stipulated that the bank should hold the meetings of 
stockholders at Genoa, Turin, and Milan alternately, in 
which cities had been established branches, besides the 
subbranches opened in other cities. To the stockholders' 
meetings were admitted only those who had owned fifteen 
or more shares for at least six months. 

In the year i860 was authorized the fusion with the 
Banca Nazionale of the Banca di Parma, which had a 
capital of 500,000 lire, of which 300,000 lire were paid in, 
and of the Banca di Bologna (or Banca delle Quattro 
Legazioni), which had a capital of 200,000 Roman scudi, 
or about 1,075,000 lire. 

By the royal decree of June 2, 1865, was approved a 
decision of the stockholders' meeting of the bank raising 
the capital from 40,000,000 to 100,000,000 lire. The 
royal decree of October 23, 1865, ratified an agreement 
made between the Government and the Banca Nazionale 



17 



National Monetary Commission 

for the assumption on the part of the bank of the treasury 
service of the State; but the Hvely opposition raised in 
ParHament caused the royal decree to remain without 
effect. 

Meanwhile, pressed by the urgent necessities imposed 
by the political situation, the Government, by royal decree 
of May I, 1866, asked the Banca Nazionale for a loan of 
250,000,000 lire, freeing it from the obligation of redeeming 
notes in specie by proclaiming the forced currency of the 
bank notes. Then came the annexation to the Italian 
State of the Venetian provinces and the Banca Nazionale 
founded a branch at Venice, substituting this branch for 
the Stabilimento Mercantile Veneto which the bank took 
over, together with its capital of 2,100,000 Austrian 
florins. There was a question at that time of the fusion 
of the Banca Nazionale with the Banca Nazionale 
Toscana, but the negotiations were not concluded. And 
as the needs of the State were becoming urgent, the Gov- 
ernment applied to the bank again, under the law of 
August II, 1870, for another 100,000,000 lire guaranteed 
by bonds on ecclesiastical property, and subsequently 
122,000,000 lire more, of which 50,000,000 were to be in 
gold. For the sum of 450,000,000 lire, which was the 
amount then remaining of the State debt to the bank, 
the latter was freed from the obligation of keeping 
the prescribed metallic reserve, and was authorized to 
increase its circulation from 750,000,000 to 800,000,000 
lire. The bank had as guaranty for its credit 333,000,000 
lire in bonds on ecclesiastical property and received 6 
per cent interest on the sums loaned to the State. 

But the needs of the latter were not yet satisfied, and 
by the law of August 28 of the same year the Government 

18 



The Banks of Issue in Italy 

asked the bank for 40,000,000 lire more, in return for 
treastiry bonds, at the same rate of interest and under 
the same condition of freeing the bank from the necessity 
of metalHc guaranty. 

This operation was destined to be only a brief forerunner 
of other much larger ones that were to follow. And in fact, 
by the law of June 16, 1871, the bank was asked to make 
another loan of 1 50,000,000 lire, guaranteed by government 
5 per cent rentes ceded at the price of 70 per cent, with the 
privilege of a corresponding increase of circulation without 
metallic guaranty; and by the law of April 19, 1872, an 
agreement between the Government and the bank was 
ratified, according to which the latter engaged to lend the 
State 300,000,000 lire more, with a corresponding increase 
of its own circulation, and was authorized to raise its cap- 
ital from 100,000,000 to 200,000,000 lire. In that same 
year new negotiations were entered into for the fusion of 
the Banca Nazionale Toscana, but they did not result in 
a specific agreement. By degrees, as the destiny of Italy 
took shape, and the scattered branches became grafted to 
the sturdy trunk of the ancient provinces under the rule of 
the dynasty of Savoy, the Banca Nazionale, following the 
favorable fortunes of the Italian army, extended its field 
of action over the whole country by means of branches 
{sedi) and subbranches (succursali) . Aiding the State 
in its every need, with an impetuosity and eagerness 
that seemed reckless, so that if the fate of Italy had 
proved adverse it would have involved the bank in com- 
plete ruin, it fully justified its title of " Banca Nazionale," 
for such it was then, and such it always remained in its 
every act. 



19 



National Monetary Commission 

Nevertheless, there was no lack of criticism, as sharp as 
it was unjustified, of the action of the Banca Nazionale; 
but when the partisan wrath let loose by a morbid sen- 
timent of grotesque bank hatred, and fed and excited 
by rival interests was once dispelled, a just and calm 
judgment prevailed. An impartial history has placed 
Senator Bombrini, who was the founder of the Banca 
Nazionale, in the number of those who cooperated vigor- 
ously and efficiently in the field of finance in the great 
work of the resurrection of Italy. 

Like the Banca Nazionale nel Regno, the Banca Naz- 
ionale Toscana was made up of the fusion of various small 
banks existing in Tuscany; such as the Banca di Sconto 
di Firenze, with a capital of 1,000,000 lire, which had suc- 
ceeded the Cassa di Sconto created by the grand ducal 
government with its own capital; the Banca di Sconto di 
lyivorno, with a capital of 2,000,000 lire; the banks of 
Siena, Arezzo, Pisa, and Lucca. This fusion, which was 
begun in 1857 with the two banks of Florence and Leg- 
horn (Livorno) only, was completed in i860. 

In 1870 the Banca Nazionale Toscana had a nominal 
capital of 30,000,000 lire, of which 21,000,000 lire were 
paid up. It was chartered as an institution of issue, a 
privilege possessed also by the smaller banks that were 
united to create it. 

To complete the group of Italian banks of issue which 
made up the Bank of Italy, there is still to be mentioned 
the little Banca Toscana di Credito per il Commercio e le 
industrie d'ltalia, which was created in i860, by decree of 
the provisional government of Tuscany. The bank was 

20 



The Banks of Issue in Italy 

constituted with a capital of 40,000,000 lire, of which 
5,000,000 lire were paid up. It did not come into existence 
as an institution of issue, properly speaking, since it 
was authorized to issue cash certificates {buoni di cassa) 
only. 

There now remain to be described the origins of the 
Banca Romana and its situation until the year 1873, ^^ 
which time ends the first period, which may be called the 
chaotic period, of the banks of issue in Italy. The origin 
of the Banca Romana goes back to the year 1850, when 
by papal decree was founded the Banca dello Stato 
Pontifico in place of a Roman bank which had not been 
successful. The charter, after the example of other 
banks of issue founded in other Italian States, was given 
for thirty years. The bank had the absolute monopoly 
of banking operations and of the issue of bank notes in 
the Papal State, but this bank likewise did not prosper; 
so that the papal government, in 1856, after fixing the 
daily redemption of bank notes in metallic money at 
6,000 scudi, was obliged later to intervene to guarantee 
the notes that it had in circulation. 

From the start the Banca dello Stato Pontifico dis- 
tinguished itself for the recklessness with which it com- 
mitted abuses of all kinds. Instead of amortizing the bills 
of exchange not paid on maturity, on which there could 
either be no hope of recovering, or else the probability of 
recovering on only a very limited part, the bank renewed 
of its own accord in its entirety the discount ledger as 
if it contained paper sure of recovery. Meanwhile, with- 
out paying the least attention to its condition, the bank 
continued to distribute dividends for not less than 5 per cent 



21 



National Monetary Commission 

of the paid-up capital, without increasing the reserve by 
the deduction of profits prescribed by law, and it bought 
on the market its own stock. At the end of 1870 the 
bank owned shares amounting to about 2,000,000 lire, 
whereby the capital might be considered reduced to about 
3,000,000 lire, which, however, did not exist, because the 
losses ascertained amounted to about 9,000,000 lire. 

When in 1870 the Papal State was annexed to Italy, 
the bank, in view of its known condition, ought to 
have been liquidated or absorbed by the Banca Nazionale. 
There were, in fact, negotiations with a view to this, 
but they had no practical result. 

The Italian Government, for reasons of a political 
nature, did not wish to order the liquidation of the only 
banking institution existing in the former Papal State, 
but wished instead to reorganize it, with especially favor- 
able provisions, that under skillful, cautious, and correct 
management would have infused new life and vigor into 
the institution, which took the name of the Banca 
Romana. 

By royal edict of December 2, 1870, it was decreed that 
the bank, giving up the complete privilege of issue in the 
former Papal State, should have, by way of indemnity, 
2,000,000 lire from other institutions wishing to open 
branches and agencies in Rome and the Roman province, 
or those which should be created and founded there. 

The capital of the Banca Romana was fixed at the 
amount of 10,000,000 lire, represented by 10,000 shares 
at 1,000 lire each. The bank was authorized to perform 
all banking operations and to issue bank notes, and under- 
took to furnish the Government the sum of 4,000,000 lire 



22 



The Banks of Issue in Italy 

at 3 per cent interest, secured by treasury bonds and 
certificates of government rentes. 

* 

Having finished the outHne of the origins and condi- 
tions of the Itahan banks of issue organized under the 
form of joint-stock companies, let us now examine the 
origins of the two banks of Naples and Sicily, which still 
keep the privilege of issue and present a character entirely 
peculiar to Italy, since there is no example in other coun- 
tries of similar institutions. 

Although the nature and character of these two banks 
were and still are of a very special kind, yet their process 
of formation was not unlike that of the other principal 
banks of issue, since they too grew and developed by 
means of fusions and by absorbing other institutions 
originally unimportant. 

The Bank of Naples is the oldest bank of issue in 
Italy, although it should be stated that the privilege of 
issuing bank notes, properly so-called, was conferred on it 
by the law of April 30, 1874. Having been created in 
1 796 by the fusion of seven pawn banks {Banchi Pit, o 
Monti di Pegno) founded by private individuals toward 
the end of the sixteenth century to fight usury, which was 
rampant at Naples, the bank had and continued to have 
for a long time the predominating character of an insti- 
tution of charity and beneficence. In the articles of 
foundation of the seven pawn banks it was settled that 
the greater part of the profits should be used in works of 
charity in Naples — in making loans to the very needy, 
without interest, in giving dowries to poor girls, in freeing 
people imprisoned for debt, in ransoming Christians who 



23 



National Monetary Commission 

had been captured by infidels, and, in general, in aiding 
the city of Naples in its needs. 

By royal edict of Ferdinand IV dated September 29, 
1794, the union was decreed of the seven pawn banks. 
The bank, united and enlarged, suddenly came into favor 
with the State and Court which drew upon it, in order 
to provide for their own needs, and also for those of their 
favorites, with the money which had been deposited with it 
because of the great confidence it enjoyed. And already, 
by 1794, the bank had been authorized to put in circu- 
lation inconvertible certificates of credit for 35,000,000 
ducats in place of like sums taken by the State and 
Court. 

The political disturbances that agitated the Kingdom 
of Naples toward the end of the eighteenth century did 
the rest. The bank, in spite of the withdrawals it had 
suffered, enjoyed nevertheless an apparently prosperous 
existence, and kept in every way its character until 
18 1 6, when by decree of December 2 the revocation was 
pronounced of all preceding acts concerning the bank, 
and it was arranged that after January i, 181 7, it should 
assume the name of Bank of the Two Sicilies, and should 
be divided into two distinct sections — one, called Cassa 
di Corte, for the treasury service of the State, public 
works, and municipalities; the other, called Cassa dei 
Privati, for the banking service of private individuals. 
From that time forth, of course, except for sums of small 
importance, the profits of the bank ceased to be used 
for works of charity and beneficence. 

To give an idea of the situation to which the Bank of 
Naples was gradually reduced, it will suffice to say that 



24 



The Banks of Issue in Italy 

in the year 1863 Minister Manna presented to King Vic- 
tor Emmanuel II a resolution reforming and reorganizing 
the bank, which, as he declared in his report, could no 
longer continue under the condition to which it had 
been reduced by the preceding Government. From be- 
ing founded in the beginning for the benefit of private 
individuals and for certain works of charity, it had 
become, little by little, an organization closely connected 
with and dependent upon the state finances, which the 
treasury drew upon largely. 

The Bank of Naples created and developed certain 
instruments of circulation somewhat different from checks 
and bank notes, properly so called; that is to say, cer- 
tificates of credit, cash orders, and orders for small 
amounts, which were, substantially, certificates of sums 
deposited in its coffers, and were all of them used as a 
means of payment, and also for the transmission of 
money from one place to another. 

Forced currency having been decreed in 1866, the privi- 
lege was granted of giving and receiving the certificates 
of credit and cash orders of the bank as current money, 
at their nominal value, in all the southern continental 
and island provinces. By the law of September 3, 1868, 
the bank was authorized to issue notes of i lira, and sub- 
sequently it was also authorized to issue cash orders for 
0.50, I, 2, 5, 10, 20, 50, 100, 250, 500, and 1,000 lire. 

The Bank of Sicily came from the union of the two 
Casse di Corte (Court Banks) founded by royal Bourbon 
decree of April 17, 1843, one situated at Palermo, the other 
at Messina, and controlled by the Bank of Naples. The 
two Court Banks were united in a single institution 



25 



National Monetary C ommis s io 



n 



which was independent of the Bank of Naples and took 
the name of " Banco Regio dei reaH domini al di la del 
Faro" (Royal Bank of the King's Domain in Sicily). 
Like the Bank of Naples, the Banco Regio di Sicilia 
received on deposit sums from the treasury and from the 
public administration and also from institutions of charity 
and beneficence, which were obliged to deposit with it- 
The Banco Regio issued cash orders (polizze) transmissible 
by transfers, also used by private individuals. It issued 
likewise certificates of credit {fedi di credito) representing 
sums deposited with it, and these were declared not subject 
to seizure and sequestration. It retained the character 
of deposit bank until 1867. 

Just as the Bourbon Government had gained access to 
the cash boxes of the Bank of Naples, so it reached those 
of the Bank of Sicily, from which it borrowed sums of 
money, being imitated in this practice by the Dictatorial 
Government also. A royal decree of May i, 1870, pro- 
vided for paying the bank the sum of 2,876,301.78 lire 
for which it was creditor. 

This bank was authorized by ministerial decree of 
January 4, 1872, to issue certificates of credit up to three 
times the amount of its metallic reserve. 

The conditions of the institutions of issue and the 
paper currency in Italy were therefore almost always 
abnormal and unorganized, since there was a mixture of 
institutions, different in nature and privilege, and a 
hybrid circulation, partly private and partly belonging 
to the State, which could not truly serve the economic 
and monetary conditions of the country. In addition to 



26 



The Banks of Issue in Italy 

about 800,000,000 lire in notes issued for the State, there 
were, in 1873, more than 700,000,000 lire in circulation 
issued by the banks of issue on their own account. These 
two figures fully justified the high rate of exchange, which 
was hovering in the neighborhood of no, with a tendency 
to rise. The occasion for the rise of agio came with the 
crisis which broke out in Austria that same year, and was 
reechoed in the other countries of Europe, including Italy, 
and in the United States. Italy had to suffer from it 
particularly because of the conditions of the domestic 
currency, which were such as to arouse serious anxiety. 



27 



Chapter II. 

THE ASSOCIATION OF THE BANKS OF ISSUE. 

In the absence of precise legislation there had grown 
up in Italy meanwhile all sorts of abuses which had taken 
the form of a veritable glut of bank notes issued by credit 
institutions, people's banks, and even by merchants and 
private individuals, so that the country was flooded with 
paper money of all kinds and qualities, down to denomi- 
nations of 30 and even 20 centesimi. The crisis in Italy 
was serious, therefore, both for internal reasons and con- 
ditions, and for the reflex action of foreign events. In the 
presence of a situation that threatened daily to become 
more grave, the Government thought it necessary to inter- 
vene by a law which reorganized the paper currency and 
regulated the issue of bank notes, regulating at the same 
time the circulation of notes which had been issued on 
account of the State. 

The parliamentary discussion of the question of the 
currency was very violent. The partisans of both sides 
of the question were drawn up in battle array — on the one 
side those who maintained that the State must be freed 
from its subjection to the Banca Nazionale by creating its 
own currency; on the other side those who argued the 
danger of investing the State with the power to create 
bank notes, a power which it would easily be led to abuse, 
while they acknowledged that the credit of the Banca 
Nazionale would cover the notes issued by it on account 
of the State. Confronted by the conflict of these oppos- 
ing tendencies, the Government decided to resort to a 

28 



The Banks of Issue in Italy 

middle expedient, which could be approved both by the 
partisans of state circulation and those who preferred a 
bank circulation. 

The middle term was found in the organizing of an 
association (consorzio) of Banks of Issue, which included 
the Banca Nazionale nel Regno with the five other insti- 
tutions — the Banca Nazionale Toscana, the Banca Tos- 
cana di Credito, the Banca Romana, and the two banks 
of Naples and Sicily. The association was to furnish the 
Government i ,000,000,000 lire in notes for denominations 
of 0.50, I, 2, 5, 10, 20, 100, 250, and 1,000 lire. Of this, 
890,000,000 lire were to be provided within a year of the 
publication of the law and the remainder subsequently 
in accordance with resolutions to be settled by the law of 
the budget or by special law. The law of April 30, 1874, 
which established the association, stipulated that whereas 
the notes to be provided the Government by the said 
association should have forced currency, those that the 
banks of issue had the privilege of issuing on their own 
account should have legal currency, and be redeemed on 
demand in the notes issued by the association for the 
account of the Government, or in metallic money; and 
after two years, the forced currency having ceased, they 
were to have fiduciary currency. 

Before proceeding to examine this fundamental law of 
Italian circulation it will be well to pause to consider the 
error sanctioned by it, an error which consists in main- 
taining that in one single country there can be a circula- 
tion with forced currency and one with legal currency, 
with the obligation of redeeming bills in metallic money. 
This is equal to imagining that in one single country there 



29 



National Monetary Commission 

can exist at the same time two kinds of currency, one 
sound and the other unsound. Now, in the conditions of 
Italy at that time, conditions clearly shown by the quan- 
tity of notes that represented a loan to the Government 
for sums greater than all the aggregate of notes that repre- 
sented banking affairs instead, and still better shown by 
the inevitable depreciation of paper money, which affected 
all of it, the presumption could not fail to seem absurd, 
and even unlawful, that the banks of issue should redeem 
at sight their own notes in metallic money. And, on the 
other hand, the right of changing the notes of the banks 
which had legal currency for others having forced cur- 
rency, from which the law had taken away the obligation 
of a metallic reserve at the ratio of one- third, could not 
evidently be of the least importance from a monetary 
point of view, since anyone who needed gold to pay for- 
eign debts could not get it either for the notes of the 
banks themselves or for the notes of the association circu- 
lating to the debit of the State and with forced currency. 
Now, it may possibly happen, and it has happened and 
is still happening in fact in various countries, including 
Italy, that a quantity of State notes is in circulation along- 
side of and in competition with notes of the banks, without 
their disturbing each other, and without the total circu- 
lation being subjected to any depreciation; but that can 
be the case only when the circulation of the banks is sound 
and rests on solid metallic reserves, fostering real com- 
mercial affairs surely payable at maturity; and when the 
circulation of the State is kept within limits that do not 
exceed the so-called " fondo-morto'' of circulation, that is 
to say, that mass of bank notes, for the most part of small 



30 



The Banks of Issue in Italy 

denominations, which remains stagnant because it cor- 
responds to the necessities of small transactions. For 
this very reason the State circulation is composed princi- 
pally of small notes which cause less disturbance in the 
matters of redemption. But when, as was certainly the 
case in Italy in the period under examination, not only 
the banking circulation was not regulated but that of the 
State amounted to an extravagant sum, it was quite impos- 
sible to talk of circulation with forced currency and circu- 
lation with legal currency. The distinction was inscribed 
in the banking law because the lawgiver, by authoritative 
act, wished to assert the right of the State not to change 
the notes, and the obligation of the banks to change 
them; but it did not correspond to the facts, which were 
that there existed in Italy one single mass of notes, 
amounting to a billion and a half, composed of two kinds 
of notes, one to the debit of the banks, the other to the 
debit of the State, but all without exception depreciated 
and really at forced currency. 

And indeed, with exchange at the above-mentioned rate 
of I lo per cent, and later in the same year of 1873 at 1 1 5.50 
per cent, if the banks had redeemed the notes in specie, 
their metallic reserves would have been completely ex- 
hausted in a few days and would have crossed the frontiers. 

But the sophism sanctioned by the law of 1874 was 
neither then nor afterwards an Italian novelty, since there 
are other examples, old and new, in various countries, 
which show that legislators have believed and still believe 
that economic principles lose all active efficacy in the pres- 
ence of the power of an article of the law, especially when 
it is a question of enactments which are supposed to con- 

39781°— II 3 31 



National Monetary Commission 

duce to the interests of the State. It is therefore a com- 
mon belief that State bank notes, or those issued by the 
banks for the State, not only do no harm to the monetary 
conditions, and consequently the economic conditions of a 
country, but that they afford a proper and economical 
method of satisfying the needs of the exchequer, some- 
times preferable to loans, which are more costly. 

The error is so deep rooted that it was not even re- 
marked upon in Spain when the State paid the bank 3 
per cent interest on notes furnished by it. There is no 
doubt that if the money which the Spanish Government 
spent for a number of years in paying interest to the 
bank on sums furnished by it up to a total of about a 
billion, had been used in paying interest on certificates of 
amortizable government stock, the question of Spanish 
circulation would have progressed more rapidly and more 
surely toward a solution corresponding to the real needs 
of the country, greatly to the advantage of both State 
and people. 

But in spite of the many defects which it contained — 
first and gravest of all, that of creating an organic system 
of plurality of banks of issue, which, as we shall see, 
was to prove harmful to Italy — we must nevertheless 
acknowledge that the law of April 30, 1874 was at that 
time of undeniable service, in view of the very serious 
condition of the country, to which it brought some reHef 
It laid the foundations of the Italian banking system 
which, being modified successively according to the 
needs growing out of changing conditions, may be con- 
sidered in substance the one which still survives to-day, 
in so far as it defined the rules for the limitation 



32 



The Banks of Issue in Italy 

of the circulation, fixing it at three times the paid-up 
capital of the banks having the form of joint stock 
companies or of the free capital possessed by the two 
banks of Naples and Sicily, on condition that a similar 
ratio should be maintained between the notes in cir- 
culation and the metallic reserve; it forbade all issue 
of notes by other institutions, and stipulated that all 
those which had notes in circulation should withdraw 
them by December 31, 1874; it established the tax on the 
circulation of bank notes at the rate of i per cent, deduct- 
ing that covered by metallic reserve; it removed the 
state guaranty for the circulation of the notes of the 
Banca Romana, which had been given by the Papal Gov- 
ernment, and obliged the bank to redeem its own notes; 
it arranged for the extraordinary increase of circulation 
in moments of urgent need, settling that this should not 
be resorted to until after tlie discount rate had been 
increased, and could not exceed 40 per cent of the paid- 
up capital and free capital of the banks of issue, and 
was not to continue for a period of more than three 
months, while the profits of the greater circulation were 
to accrue entirely to the State. 

A provision of the law that was exceedingly severe, and 
in practice never observed, stipulated that any banks of 
issue keeping in circulation bills or other equivalent certifi- 
cates payable to bearer, beyond the sum authorized by 
the law, or assuming other obligations payable at sight 
or on simple demand, without maintaining the prescribed 
ratio to the metallic reserve, should be obliged to pay the 
State a fine for a sum equal to the excess of circulation 
or liabilities or the deficiency of the metallic reserve. 



i2> 



National Monetary Commission 

Another exceedingly severe provision of the law, hence 
never enforced, took away legal currency from the notes 
of the banks which had not satisfied the requirement 
to redeem their notes in the notes of the association or 
in metallic money. 

An article of the same law provided further for the 
mutual redemption of notes among the banks of issue in 
conformity with rules to be established by royal decree. 
It will be seen in due course how^ this requirement of 
redemption gave rise to bitter and violent discussions, and 
how the Government ended by abolishing it. 

The same law established the amount of the capital 
and free capital of the banks of issue which should serve 
as a basis, together with the respective metallic reserve, 
for the issue of bank notes; it provided for establish- 
ing in detail the government inspection of banks by a 
regulation to be ratified by royal decree; and so great 
was the faith that the adjustment made by this law 
would completely cure the ills of the country's currency, 
that it ordered the Government to present within six 
months of its promulgation a report on the paper cir- 
culation, with the proper provisions for bringing about 
the abolition of forced currency. 

Such confidence could not fail to seem excessive if 
we consider that, as we have already seen, the State 
alone had a circulation of 860,000,000 lire, which it was 
proposing to raise to i ,000,000,000 lire. This circulation, 
of which the part already issued and still to be issued by 
the Banca Nazionale nel Regno amounted to 890,000,000 
lire, was, according to the law of 1874, to be replaced by 



34 



The Banks of Issue in Italy 

bank notes issued by the six banks organized into a 
association. 

The notes that the association was to furnish the State, 
up to a maximum total of 1,000,000,000 Hre, of which 
890,000,000 Ure were to be furnished within the first year, 
were to be issued at the charge of the banks themselves ^ 
in proportion to their respective paid up capital or free 
capital; but in order to give immediate effect to the law 
it was stipulated that the notes of the Banca Nazionale 
of the denominations of i, 2, 5, 10, 20, 250, and 1,000 
lire should be declared provisionally association notes, 
— higlietti consorziali provisori — while those of denomi- 
nations of 25, 40, 50, 100, and 500 were to remain in cir- 
culation on account of the bank itself. With the notes 
of the association the State reimbursed the Banca Na- 
zionale for its credit, which had amounted to 860,000,000, 
lire, to which was added an additional 30,000,000 lire 
provided for by the laws of December 21 and 24, 1873. 

Thus ended this period of relationship between the 
State and the Banca Nazionale, which, as we have seen 
above, had excited so many polemics, and the principle 
of the plurality of the banks of issue was reenforced, 
and extended also to the banks of Naples and Sicily 
in a more explicit and organic way. Until then these 
had been considered institutions of a special kind, author- 
ized to issue fiduciary certificates different from bank 
notes, but once granting the continuance of the plurality 
of banks, they could no longer be excluded from the 
privilege of issue. 

The effects of the new law on the currency could not, 
however, be realized in this same year of 1874, because 



35 



National Monetary Commission 

in Italy and abroad the crisis which had broken out the 
year before still lasted and its final liquidation went on 
until 1876. 

In the year 1875, however, the first good effects of the 
banking law began to be felt, effects due, moreover, to 
external causes also which must be taken into account 
and deserve some slight mention, inasmuch as they show, 
in no doubtful way, that the conditions of the circulation 
and credit and in general of the public economy 
can not always be regarded as independent and 
separate from those of the finances of the State. 
Examples may be given of their absolute independence of 
each other, in that there are cases of countries financially 
rich and economically poor, since, while the people work, 
produce, earn, and save, governments with an anti- 
economical and spendthrift policy scatter the public 
money and ruin the State finances ; such examples can not 
be shown, however, except from special causes of a transi- 
tory nature. Consequently, there is no example of a 
country permanently in a state of economic inferiority 
and financial prosperity, because the latter can not become 
solid if it is not based on economic prosperity; likewise 
there is no example of a country with State finances perma- 
nently disorganized and in normal economic and mone- 
tary conditions, because the State, in order to provide for 
the financial embarrassments, will have recourse to issues 
of obligations or its own notes, or bank notes with forced 
currency, and will oppress the public economy with 
excessive taxes which will dry up the sources of national 
activity. 



36 



The Banks of Issue in Italy 

In general, a very close connection may be seen between 
the conditions of the State finance and those of the public 
economy, a connection which makes each feel, from time 
to time, the effects of events either fortmiate or unfortu- 
nate, to which both may be subject. 

Let us add that sometimes the economic conditions of 
a coimtry may be harmed by external causes also, espe- 
cially if it is a question of a debtor country, which, in 
order to provide for the financial needs of the State or 
those of its own economy, has asked and obtained the 
help of foreign capital; since it is enough in such a case 
for the foreign market to be disturbed, to cause the State 
secinrities or banking and industrial securities to be sent 
back with a violent movement to the debtor coimtry, 
which must pay for them in ready money. Instinc- 
tively, creditor countries, in moments of financial crisis or 
monetary stringency, dispose of the foreign securities 
that they can normally sell at prices higher than those 
at which they have bought them, and which they will 
then be able to get back at prices lower than the ones 
at which they sell them, because their privileged position 
puts them in the way of choosing the right time to buy 
and the right time to sell. On the broad green cloth of 
the international market creditor countries are the play- 
ers who play most frequently with marked cards. 

It comes about for this reason that while creditor 
countries escape with the rapid sale of foreign securities 
fimctioning as ballast, which permits the market to re- 
main up, debtor countries, which are necessarily desti- 
tute even in normal times of the available cash needed 



37 



National Monetary Commission 

for the regular progressive development of their own 
activity, find themselves, instead, exposed to suffer more 
rudely the effects of the disturbances of the financial 
markets, even when the countries themselves have noth- 
ing to do with the causes which have provoked them. 
In such cases it is of no avail for a country to have a 
circulation that is sound because it represents true and 
valid commercial transactions, surely payable at matu- 
rity, and adjusted to the internal needs of the country — 
since the abrupt rettirn from abroad of a considerable 
quantity of national securities, suddenly altering the ratio 
of debit and credit of the country, disturbs its monetary 
tranquillity and makes exchange rise rapidly. 

But even without the mediation of violent causes, such 
as the breaking out of a crisis, the monetary economy of a 
country may likewise be disturbed by the bad conditions 
of the State finance, since the decline and return of the 
securities of a country may be due also to discovering a 
big deficit for which it is not easy to provide. 

Italy, which was for many years a debtor country for 
enormous sums, to the extent of having abroad as much as 
some 6,000,000,000 lire in State and private securities, was 
obliged many times to experience the effects of this con- 
dition of inferiority of debtor countries, which find them- 
selves without weapons in the monetary contests fought 
in the international market. And while they remain 
almost isolated and excluded from the normal movement 
of the international money currents, because foreign 
capital can not be attracted to them without the induce- 
ment of higher remimeration, owing to the frequent 
fluctuations of exchange, which make capitalists insecure 



38 



The Banks of Issue in Italy 

and timid, debtor countries are in addition exposed to 
suffer more harshly the consequences and reflex action 
of distiu'bances which come into the international market 
for any reason, whether political, economical, monetary, or 
speculative. It may be said, therefore, that debtor 
countries with impaired finances and circulation are, 
in their relations with creditor countries, isolated in good 
and associated in evil. 

These things are mentioned here not as a theoretic 
summing up of the reciprocal relations that inevitably 
intervene between the conditions of the State finance and 
those of the economy of a country, but as an explanation 
of the monetary disasters of Italy, which were not all exclu- 
sively dependent upon the conditions of the paper currency 
and the situation of the banks of issue. 

So, for example, the increase of exchange mentioned 
above, from no, the highest point reached in 1872, to 
115.55, the highest point reached in 1873, was not due to 
any increase in the evils of the Italian currency, but, as 
we have already said, to the crisis which broke out in 
Austria, and reacted on other countries on both sides of 
the Atlantic ; and it was also due to the conditions of the 
financial balance sheet of the State, in which the deficit, 
which had fallen from 214,000,000 lire in 1870 to 47,000,000 
lire in 187 1 , had risen again to 83,000,000 lire in 1872 and to 
89,000,000 lire in 1873. In direct ratio with the advance 
in exchange stood the decline of Italian rentes on the 
Paris market, which went down, in 1873, from a maximum 
quotation of 68.40 to a minimum of 58.10, and in 1874 
from a maximum of 68 to a minimum of 58.90. 



39 



National Monetary Commission 

But the beneficial effect of the new law on the paper 
currency which was visible, as we have said, in 1875, was 
due to the better condition of the international market 
which was still engaged in the liquidation of the crisis, 
already for the most part completed, and also to the 
improved conditions of Italian finance. Italian rentes 
fluctuated in 1875 between the minimum quotation of 
66.10 and the maximum of 74; exchange varied between 
the minimum rate of 105 and the maximum of 109.30, 
while for the first time there appeared a surplus in the 
budget for the sum of 14,000,000 lire. 

Conditions remained stationary, tmtil, in 1877, a new 
decline in Italian rentes in Paris (which fell from 73.20 
to 62.15) provoked a new rise in exchange to 113. 

The following period from the point of view of the 
functioning of the system of the paper currency, does 
not present details worthy of special mention. Although 
signs were aheady discernible of a rivalry between the 
various banks of issue which was later to have disastrous 
effects, yet they were acting in relative, or at least appar- 
ent, harmony, and their action did not exceed the normal 
needs of the coimtry, which was gradually developing its 
economic activities. But an important political event, 
the fall from power of the party of the Right which had 
remained in for a long time, and the advent to the Gov- 
ernment of the party of the Left, was to have, even in the 
matter of the currency, noteworthy results. 

The party of the Left had come into power with youthful 
impetuosity, bringing with it a large baggage of financial 
and economic reforms; it had come filled with the im- 
patience of the fighting spirit, as if it believed it had a 



40 



The Banks of Issue in Italy 

great mission to accomplish. The principal ideas of the 
economic-financial reform programme were the abolition 
of the grist tax and the abolition of forced currency. | 
In order to win an enthusiastic reception for these two 
important parts of the programme of the Left, sensational 
phrases were found calculated to excite and captivate the 
minds of the crowd; phrases such as political parties 
never lack. And it was said the "grist tax is a starva- 
tion tax," and "forced currency is a dishonor." 

As for the first, the seal put upon it might have seemed 
suitable to define it exactly if, almost immediately upon 
the abolition of the grist tax which brought into the 
State coffers about 45,000,000 lire a year, there had not 
been imposed a duty on the importation of grain, as 
high as 7.50 lire a hundred kilograms, which put from 
150,000,000 to 160,000,000 lire and even more a year in 
the pockets of the producers of grain, without, of course, 
benefiting in the least the people in general. On the 
contrary, it may be said that the abolition of the grist 
tax was the signal for an increase in the price of bread. 

But it is not easy to make out why forced currency 
should be considered a dishonor. Forced currency is the 
condition of monetary inferiority of a country, which may 
be, as was precisely the case with Italy, the result of 
the immense expenses incurred in the long-drawn-out 
struggle for the political unification of the Kingdom, and 
for the urgent and serious needs growing out of its imi- 
fication. Forced currency may also be the result of 
financial and economic errors; in any case it indicates 
a state of affairs that is prejudicial, but not dishonorable 
for a country, unless it has grown from immoral and 



41 



/ 



National Monetary Commission 

criminal causes; and since it is a prejudicial state, it is 
fitting to consider the ways and means best suited to 
bring it to an end. 

However that may be, inasmuch as the I^eft had come 
into power, it was its desire and duty to solve these two 
questions; and while Signor Seismith Doda, minister of 
finance, was engaged upon the question of the grist tax, 
and got the bill passed by the Chamber in the midst of 
the raging of the most violent polemics and the deter- 
mined opposition of the Senate, on the other hand Signor 
Agostino Magliani, minister of finance, was later to take 
up the question of forced currency. 



42 



Chapter III. 

THE ABOLITION OF FORCED CURRENCY AND ITS EFFECTS. 

It seemed to the I^eft on coming into power that in 
abolishing the forced currency of bank notes it would win 
a fight which would raise it to a great height in comparison 
with the party of the Right, which, although it had 
expressed at various times the intention of providing for 
the abolition of forced currency — an intention that Marco 
Minghetti had promised by an article of the law of April 
30, 1874, to carry out by presenting a bill to that effect 
within six months from the promulgation of the law 
itself — had, none the less, failed to succeed in doing it. 

In spite of all the bitter and not entirely unjustified 
criticisms heaped upon the long financial work of Agostino 
Magliani, an impartial historian can not fail to recognize 
that he was a man of profound learning, of marvelous 
ingenuity, of subtle mastery of technique, with a broad 
knowledge of the problems that bear upon State finance 
and public economy; being rich in resources and expedi- 
ents, he was able at times to extricate himself with great 
ease and simplicity from involved and difficult situations ; 
and he was, above all, of exemplary uprightness; the last 
quality the other ministers of Italian finance possessed in 
common with him. 

Agostino Magliani, who was minister of finance for 
ten years and took part in very important financial 
operations, died poor. 

It is not probable that Agostino Magliani failed to con- 
sider, in the intimacy of his conscience, certain of the 



43 



National Monetary Commission 

objections and reservations which had been made, in 
lively forms too, by his adversaries. But he was now in 
the service of the party which desired the great victory of 
the abolition of forced currency; and since he was not as 
energetic and resolute as he was talented, he was unable 
to resist and allowed himself to be drawn along by the 
current; which signifies that in this matter of forced 
currency, as in other things for which he was reproached, 
even by his friends, in virtue of that right to ingratitude 
of which those persons especially avail themselves who 
wish to make others solely responsible for errors that have 
been planned and committed together, Agostino Magliani 
must be considered in great part as the executor of a col- 
lective will that was imposed upon him. If he had 
obeyed the dictates of his knowledge and conscience and 
given up office, as he had often expressed the intention 
of doing, in order not to lend himself to carrying out that 
financial policy which distinguished the first period of 
the advent to power of the Left, a financial policy which 
was called optimistic and thoughtless, he would, by aban- 
doning his post have saved his reputation but would not 
have helped finance, whose optimism and thoughtlessness 
would not have ceased on that account, but would, 
instead, have increased. For Agostino Magliani raised 
more than once a voice of severe admonition and refused 
to carry out the other parts of the financial programme 
which the party, to use the time-honored phrase, had in- 
scribed on the folds of its banner. 

However, the prevailing idea that forced currency must 
be abolished by a summary proceeding, by a law which 
declared its downfall, showed clearly how superficially this 



44 



The Banks of Issue in Italy 

grave problem had been examined. Nevertheless, the 
plan that Magliani evolved bears witness to his great talent 
and puts in evidence the prevailing benevolence of his 
mind, naturally inclined to see and foresee the good; for 
Agostino Magliani was above all a great optimist. 

Considering that the forced currency of bank notes had 
been decreed and imposed for State reasons, in order to 
keep coactively in circulation, and make accepted the 
notes of the State, Magliani proposed to redeem these 
notes with the proceeds of a loan to be made in gold for a 
sum of only 644,000,000 lire, 44,000,000 of which were to 
serve to reimburse the loan in gold made by the Banca 
Nazionale to the Government to buy over the tobacco 
monopoly. 

Since 940,000,000 lire of notes were then circulating 
under forced currency and to the debit of the State, there 
would remain, not redeemed in gold, 340,000,000 lire, which 
Magliani judged could be left in circulation without dis- 
turbing the mass of notes, especially because they would 
be divided into notes of small denominations of 5 and 10 
lire, and would be declared convertible into metallic money 
on demand, then cancelled annually by means of the 
surplus of the budget, on which he thought he could surely 
count; while, in the meantime, a corresponding sum in 
certificates of government rentes deposited in the Cassa 
dei Depositi e Prestiti was set aside to guarantee the State 
notes. 

These promises and guaranties caused the proposal for 
the creation of true and proper State notes, to be favora- 
bly received, though not without difficulty and opposition, 
the provision being considered of a transitory character, 



45 



National Monetary Commission 

which was to make less arduous the greatly desired aboli- 
tion of the forced currency of notes. 

Naturally, the loan involved a greater annual expense 
of about 36,500,000, because, in order to obtain the sum 
of 644,000,000 lire, it was necessary to sell, at the price of 
88, 5%, Italian rentes for a nominal value of 729,745,000 
lire, bearing 36,487,250 lire interest. Minister MagUani 
had to show, therefore, that the greater expense would be 
partially offset by the fact that the abolition of forced 
currency would diminish the burdens of the Italian 
treasury in the payments it had to make abroad. He 
was obliged, moreover, to propose other resolutions, the 
most important of which consisted in a modification of 
the system of pensions to the employees of the State, by 
means of creating a department independent of the treas- 
ury ; a change by which Magliani coimted on saving about 
19,000,000 lire a year. This design, however, was not car- 
ried into effect. 

But without going into particulars of minor importance, 
it may be stated that the foundation on which rested the 
whole structure of the bill for the abolition of forced cur- 
rency was represented by the optimism of Magliani, by 
the strong and sure faith that he had in the progressive 
increase of the returns, and in the firm estabhshment and 
further increase of the surplus of the budget. The opinion 
was clearly fixed in his mind that the very abolition of 
forced currency, by stimulating still further the activity 
of the country, would help the national economy, and 
through direct and indirect ways compensate the budget 
for the burden which it was apparently about to assume 
by the issue of the new loan. And as it always happens 



46 



The Banks of Issue 



in 



Italy 



when profitable and agreeable things are announced, he 
succeeded in communicating his conviction and his opti- 
mism to the great majority of the members of Parliament, 
who passed the bill with enthusiasm. 

To justify the roseate forecasts of Maghani it may be 
well to say that the budget had closed for the fiscal year 
1879 with a surplus of 42,000,000 lire in the ordinary part, 
a surplus which had gone down in 1880 to 27,000,000, and 
that all the signs of the economic and industrial move- 
ment of the country pointed to a betterment which jus- 
tified the faith in further progress. The situation of 
the banks of issue at the end of 1879 was as follows: 

[Amounts expressed in millions of lire.] 



December 31, 1879. 



Banca Nazionale nel Regno 
Banca Nazionale Toscana. . 
Banca Toscana di Credito . 

Banca Romana 

Banco di Napoli 

Banco di Sicilia 

Total 



Capi- 
tal. 



200. o 
30. o 
10. o 

150 

43- I 
10. o 



308. I 



Notes in 
circu- 
lation. 



441 
59 
14 
43 

144 
29 



732.4 



Demand 
liabili- 
ties. 



21.0 

. 2 

. I 

2. 2 

73.9 

23.4 



120. 7 



Depos- 
its. 



68.4 
o 



97. 2 



Dis- 
counts. 



204. I 

33- 4 

6.6 

37- I 

76.8 

23.3 



3»i.3 



Loans. 



55.6 
1. 1 

4.9 

4- 7 

56.0 

7.8 



130. 2 





Metallic reserve. 




For bank notes. 


For demand lia- 
bilities. 


Grand total. 




Amount. 


Per 
cent. 


Amount. 


Per 
cent. 


Amount. 


Per cent 

of bank 

notes. 


Banca Nazionale nel Regno. . . . . 

Banca Nazionale Toscana 

Banca Toscana di Credito ...... 

Banca Romana 


154.8 
19. 7 
6.4 
16.3 
75.2 
ID. 4 


35 
33 
45 
12 
52 
35 


7.0 
.06 
.03 
. 7 
24. 6 

7.8 


33 
33 


161. 8 
19.8 
6.4 
17.0 
99-8 
18.2 


36 
2>l 
46 
39 
68 


Banco di Napoli 


Banco di Sicilia 


61 






Total 


282.8 


38 


40. 2 


33 


323.0 


44 





39781°— II- 



47 



National Monetary Commission 

The loan of 644,000,000 lire was taken up by an Anglo- 
French- Italian Syndicate, under the direction of the 
Banca Nazionale nel Regno, which, in agreement with 
Signor Magliani, was to overcome rapidly grave difficulties 
subsequent upon the Tunis question, which made the 
French market less inclined to share openly in a great 
Italian financial operation. The loan was fully successful, 
principally because of the enthusiasm of the English 
market, to which it was presented under the auspices of 
the two great banking houses, Hambro & Co. and Baring 
Brothers. 

Of the proceeds of the loan, 44,000,000 lire in gold were 
used to pay back the loan made by the Banca Nazionale 
for the government tobacco monopoly; 1 16,000,000 lire in 
foreign payments on account of the treasury. The re- 
maining 484,000,000 lire, of which 398,000,000 lire was in 
gold and 86,000,000 in silver were deposited in the coffers of 
the treasury, which substituted for the sum of 1 16,000,000 
lire paid abroad on its account an equal amount of gold 
received in payment of customs duties. On May 10, 1883, 
the Italian treasury possessed 728,000,000 lire in gold. 

The law of April 7, 1881, for the abolition of forced cur- 
rency, dissolved from June 30 of the same year the asso- 
ciation of the banks of issue, and declared that from 
that date the notes issued by it on account of the State 
should be constituted a direct debit to the latter; and it 
arranged for the calling in of State rentes which, having 
been given first as guaranty for the loans made by the 
Banca Nazionale, had been transferred later to guarantee 
the notes of the association, substituted for those of the 
bank itself. 



48 



The Banks of Issue in Italy 

The association notes, which had passed over entirely 
to the debit of the State, were declared legal tender in the 
whole Kingdom, but reimbursable on demand in coin. 
The notes of the Banca Nazionale, declared temporarily 
association notes, were to be changed, within five years, 
into definitive association notes at legal currency; after 
this time they should be lapsed in favor of the State. 
Thus also the notes of 5 and 10 lire, issued by the associa- 
tion, should be changed into State notes of the same 
denominations. , The State was to deposit at the Cassa 
dei Depositi e Prestiti certificates of rentes for the sum, 
at nominal value, of 340,000,000 lire, as a guaranty for 
a like sum of State notes. As we have already seen, the 
law stipulated that the total of the State notes should 
be diminished by the surplus of the budget available for 
the sinking fund of treasury debts, against the withdrawal 
and canceling of a corresponding amount of the rentes 
deposited as guaranty. 

The law disposed that from the date on which was 
begun the redemption of the association notes in metallic 
money the customs duties on imports should be paid in 
the said notes or in metallic money, excluding frac- 
tional money beyond 100 lire for every payment. The 
legal currency of the notes of the banks of issue was con- 
tinued for the whole of 1883, and, at the same time, 
it was arranged that the Government should have the 
option to receive these notes in the public coffers even 
after they had ceased to have legal currency. The metal- 
lic reserve for the guaranty of the notes of the banks of 
issue was to be composed exclusively of metallic coin 
having legal cmrrency in the Kingdom, and the Govern- 



49 



National Monetary Commission 

ment undertook the task of keeping watch to prevent the 
gold reserves of the banks from being disposed of or con- 
verted into silver. 

The Government reserved the right to establish the 
rules for the mutual redemption of the notes between the 
banks of issue and between these and the treasury dur- 
ing the legal currency and to provide for the estab- 
lishment of clearing houses in the principal cities. 

The same law organized a commission charged with the 
supervision of the abolition of forced currency, pre- 
sided over by the minister of the treasury, and composed 
of four senators, four deputies, and four State officials, des- 
ignated by the ministerial council. The commission was 
to inquire into the precautions necessary to the putting 
into effect of the law for the abolition of forced currency 
and had the duty of watching the progress of the result- 
ing operations, which they were to describe annually in 
a report to be presented to Parliament. 

The presentation of the bill for the abolition of forced 
currency, made in November, 1880, produced an extraor- 
dinary effect. Exchange, which had remained at the 
beginning of the year in the neighborhood of 112, and 
was still in the month of October not much below no, 
fell in November to a minimum course of 101.62. 

This rapid fall of exchange showed what had already 
been proved in Italy, and, for that matter, in all countries 
with a depreciated paper circulation; that is to say, 
exchange is not only the natural, exact measure of the 
loss of paper money as compared to metallic money, but 
it is besides an article of speculation, as may be seen 



50 



The Banks of Issue in Italy 

clearly by the frequent and sometimes convulsive fluc- 
tuations it undergoes, which constitute a very great 
injury for a country with an abnormal circulation; since 
the frequent variation of the rate of exchange does 
more harm than if exchange remained permanently at a 
still higher level, because it furnishes an element of 
continual uncertainty which injures international com- 
mercial relations seriously and drives away from the 
country such foreign capital as it may need. 

Speculators in Ital}^ had organized their game on a 
basis which assured its full success. They knew the 
moments when the Italian Treasury needed to make 
foreign payments in metallic money, especially the pay- 
ment of the interest on the public debt, and knew approx- 
imately its amount, just as they knew, very nearly, the 
sums needed in gold for payments of other kinds and for 
interest on other Italian securities owned abroad. There- 
fore, as the time approached when the treasury and the 
institutions and com^panies or business firms were to pro- 
ceed to buy up exchange, speculators artificially advanced 
its price, in order to sell exchange more dearly to those 
who wanted it. Moreover, speculators bought up whole- 
sale at home coupons of government rentes which they 
sent abroad in order to receive payment in gold for them. 
Against this second injurious expedient the Italian 
Treasury succeeded at last in partially defending itself, 
when in 1893 it established the affidavit — that is to say, 
the obligation of presenting the coupons of government 
rentes with the sworn declaration that they were in actual 
fact owned abroad — a legitimate and honest provision 



51 



National Monetary Commission 

which, though bitterly criticised on its presentation, 
succeeded admirably none the less and was later imitated 
by other cotmtries. 

And the treasury succeeded also, though no less tardily, 
in defending itself against gambling on exchange, made 
specially to its detriment, by stipulating that the pay- 
ment of customs duties should be made in gold. 

The phenomenon manifested at the moment of the 
presentation of the bill for the abolition of forced currency 
was of an essentially psychological character. No really 
perceptible modification of a kind to justify the decline 
of exchange from no to 101.62 had actually taken place 
in the monetary situation of Italy. The quantity of 
paper circulating in the country had not diminished, and 
the metallic reserve was not increased. But the presenta- 
tion of the -bill, though announced for a long time before- 
hand, had none the less been considered doubtful. When 
it was at last presented, it had the persuasive force of an 
accomplished fact, and gave a stunning blow to the specu- 
lation which was still operating on the course of exchange. 
It not only obliged those who were speculating for the rise 
in exchange to liquidate their obligations, but it led imme- 
diately to speculation for the fall in exchange, now sup- 
posed to be on the way to par. And in fact, the favorable 
forecasts were far transcended, since exchange continued 
to fall, touching the minimum rate of 98.78 in June, 1881, 
shortly after the ratification of the law for the abolition 
of forced currency. 

This fortunate situation was destined, however, to be 
rudely disturbed in the following year by an event outside 



52 



The Banks of Issue in Italy 

of Italy which helped to make more evident the monetary 
precariousness of debtor countries. In fact, the very 
grave speculative crisis which acutely affected the Paris 
market in 1882, caused to reappear with greater violence 
the phenomenon already observed in respect to Italy. 
Italian rentes, which had gone up brilliantly in Paris to 
a maximum price of 93.50, as a result of the passing of 
the law abolishing forced currency and of the fall of 
exchange, fell to a minimum of 84, while exchange rose 
rapidly to 104.22. 

It is well known that the Parisian crisis was reechoed, 
though with less intensity, in the other markets, and that 
its liquidation was long and tedious. The Italian market 
also was greatly disturbed in every quarter, at a moment 
when, through the effect produced by the abolition of 
forced currency, it was preparing with a certain eagerness 
to give a more lively impulse to its economic activity. 
The shares of the Banca Nazionale went down from a 
maximum price of 2,400 lire to a minimum of 2,073, ^-^d 
along with them all Italian securities suffered considerable 
losses. 

This harsh lesson should have led people to consider 
that the economic situation of the country was still weak, 
and should have made prevail in every department a 
policy of moderation and concentration. But no sooner 
had the crisis been liquidated than new plans of enter- 
prises and work were brought forward which the students 
of the economic conditions of the country judged exag- 
gerated and dangerous, especially as a superficial obser- 
vation of the movement which was taking shape in the 



53 



National Monetary Commission 

country showed that it was due in too great a degree to 
the work of speculation. 

And while the State, after the victory of the aboli- 
tion of forced currency, was entering upon a course of 
prodigal extravagance, increasing expenditures beyond 
all measure, the agricultural crisis broke out, principally 
in the south of Italy. This was brought about for the 
most part by the considerable and sudden fall in the price 
of cereals resulting from the competition of other countries, 
especially North America. 

The difficult conditions in which southern Italy foimd 
itself led the Bank of Naples in the beginning to increase 
considerably its discoimt operations, and consequently 
to extend its own action even in other parts of Italy. 
The average total of discount operations of the Bank of 
Naples, which had been 25,000,000 lire in 1883, ''ose to 
28,000,000 Hre in 1884 and to 50,000,000 lire in 1885; that 
is to say, it increased 100 per cent. The discoimt opera- 
tions of the Banca Nazionale went up from an average of 
136,000,000 lire in 1883 and 135,000,000 lire in 1884 to 
186,000,000 lire in 1885, an increase of 37 per cent. The 
total discoimt operations of the six banks of issue increased 
from 210,000,000 lire in 1883 to 212,000,000 lire in 1884 
and to 303,000,000 lire in 1885. The increase amounted 
to 44 per cent. 

It was at this period that a lively competition arose 
between the Italian banks of issue, which carried them 
beyond the bounds to which they should have limited 
their activity, and had serious consequences for all, 
showing one of the most dangerous sides of the plurality 
of banks of issue. 



54 



The Banks of Issue in Italy 

Whereas the Bank of Naples, not having shareholders 
to whom dividends must be distributed, could give credit 
at rates even less than normal, the Banca Nazionale was 
influenced by other reasons of a special kind to obtain 
a larger supply of profits to furnish dividends to its 
shareholders. It has already been stated that the Banca 
Nazionale, by casting its lot with that of the resurrection 
of Italy, had exposed itself to the risk of going under 
in case the politics and army of Italy experienced re- 
verses; but since fate smiled on Italy instead, the Banca 
Nazionale was able to reap a large profit from the 
faith it had placed in the fortune of the country, and 
from the bold financial support it had eagerly given to 
establish it. 

And in fact, whether with profits derived from the opera- 
tions carried on with the Government or with those re- 
ceived from gradually selling off, at higher prices, the rentes 
received from it, the bank had been able until 1881 to 
pay dividends of 100 lire, and even more, on shares paid 
up at 750 lire. But the profits of extraordinary opera- 
tions either having ceased or diminished, and the bank 
having no more rentes to sell or to value in its balance 
sheet at a higher price, dividends went down to 89 lire in 
1883 and to 78 in 1884. 

Between the desire to rival the Bank of Naples, espe- 
cially in the south of Italy, and that of not seeming to 
diminish dividends, the business of the Banca Nazionale 
became more active and apparently more profitable. 



55 



National Monetary Commission 

The rivalry increased among all the banks , whose opera- 
tions began to expand with a feverish movement, as may 
be seen by the following table: 



Banks. 


Year. 

1883 
1884 
1885 
1883 
1884 
1885 
1883 
1884 
1885 
1883 
1884 
188s 
1883 
1884 
1885 

1883 
1884 
1885 


Average 

notes in 

circulation. 


Average 
metallic 
reserve. 


Per 

cent. 


Discounts 
in millions. 


Loans. 


Banca Nazionale 

Banco di Napoli 

Banca Nazionale Toscana . 
Banca Romana 


454 

491 

526+72 

142 

179 

207 +65 

52 

62 

71 +19 

44 

47 

43 - I 

36 

38 

42+6 

14 
14 
14 - 


154 
232 

213 +59 
112 

134 
137+25 

19 

26 

32 +13 

19 

22 

16- 3 

26 

31 

27+1 

• 

5 
5 
5 


34 
47 
40 
80 

75 
66 
36 
42 
45 
43 
47 
37 
72 
80 
64 

35 
35 
35 


1.635 
1.699 
2,359+724 

303 

342 

597+294 

143 

164 

265 +122 

117 

114 

151 + 34 

112 
98 

194+ 82 

59 
44 
30 - 29 


67 

78 

83+16 

80 

68 

96+16 

3 

3 

2 

I 


Banco di Sicilia 


I 

4+ 3 
1 2 


Banca Toscana di Cre- 
dito 


1 1 

II - I 

43 




064 
«75+32 




+ 161 


+ 95 1 


+ 1.227 


+ 66 



o Carrying operations. 

These figures give a general idea of the very hasty work 
accomplished by the banks in the three years 1 883-1 885, 
especially the noteworthy increase in discount operations, 
which rose from 373,000,000 lire at the end of 1883 to 
617,000,000 lire at the end of 1885, at the rate, that is, of 
about 66 per cent, an increase which became in the follow- 
ing year 80 per cent in comparison with 1883, having in- 
creased in 1886 to 673,000,000 lire. But it may be well 
to pause at 1885, because the progress of the banks of 
issue, which was destined, as we shall see later, to follow a 



56 



The Banks of Issue in Italy 

dizzy course, was already beginning to give some anxiety 
and to make evident the propriety of sm-rounding the 
action of these banks with greater precautions and check- 
ing their impetuosity with moderating provisions. And 
the propriety of this was all the more evident because 
article 23 of the act for the abolition of forced currency, 
although fixing for December 31, 1889, the termina- 
tion of the privilege of issue granted to the six banks, 
prescribed that in 1882 there should be presented a bill 
aiming at establishing the rules by which the issue of 
bank notes could be granted and regulated. 

The lawmaker, having provided by the law of 1881 
for the abolition of forced currency, saw that the 
regulation of the circulation of the notes proper of the 
banks was defective, and felt the necessity of provi- 
sions suitable to improve it. Ministers Magliani and 
Berti had already presented in 1883 a bill in accordance 
with the intention mentioned above, accompanied by a 
learned and complete report; but the bill did not have 
the honor of being discussed, nor yet the many other bills 
that followed it, commencing with the one presented in 
1886, and suggested by the desire not to hinder further 
the reorganization of the banks, foreseen and promised 
by the law of 1881, as well as by the anxiety awakened 
in thoughtful people by the somewhat reckless course 
pursued by the banks of issue at that time. 

However, it should be mentioned in explanation, if not 
in partial justification of the failure of the bills for bank- 
ing reorganization that, for various reasons, the majority 
of the Italian public never encouraged the lawmaker in 



57 



National Monetary Commission 

the path of wise banking reforms. In the first place, the 
pubHc, especially in moments of greater business expan- 
sion, whether real or fictitious, commercial or speculative, 
never expressed any other desire than that of having 
liberally at its disposal the greatest possible quantity of 
bank notes. It may be said that there has been in Italy 
no occasion either of internal crises, or crises reflected 
from without, of a nature prevailingly speculative, that it 
has not been seized upon as a pretext to ask the Govern- 
ment for an increase of circulation — and it was not asked 
for in an exceptional and transitory way, in the sense 
accepted and practised with success in all the countries 
suffering from crises, but in a much larger sense, without 
time limit. 

The increase of paper money was demanded on the pre- 
text that the country was in need of a circulating medium, 
confounding paper money with capital or believing that 
it could create capital, without giving any thought to the 
absolute necessity of keeping the issue of paper money 
within the limits counseled by prudence, with due regard 
to the existence of the metallic reserve, which is the safest, 
the most solid, and the principal guaranty of the paper 
currency. 

But it was more than a question of a lack of encourage- 
ment; there existed actual hostility in Italy to any 
attempt whatsoever at a wise banking reform. Here the 
plurality of institutions revealed all its power for harm, 
because every time the Government showed itself anxious 
to touch upon the banks of issue it found itself hedged 
about by all sorts of obstacles and difficulties, created 



58 



The Banks of Issue in Italy 

by all those who had interests in keeping up the exist- 
ing situation, or who were demanding favors for one or 
another of the banks. There is no need of pausing to point 
out how this happened, since it is well known that in 
parliamentary regimes all the special interests of any given 
moment easily succeed in prevailing, and this without 
the intervention of illegal and dishonest means, as may 
generally be said to have been the case in Italy. 

For the unfortunate events that have happened in 
Italy in this connection may be considered as an excep- 
tion to the general rule of correctness of the banks of 
issue; an exception from which, perhaps, few countries 
have been free. And in Italy the introduction of the 
political element in favor of this or that bank was or might 
appear justified by the distinctly regional character which, 
as we have seen, the six Italian banks possessed. What 
happened in Italy in this regard, that is to say, the defense 
of the regional institutions, is not, moreover, very differ- 
ent from what has happened elsewhere and is now hap- 
pening in Austria-Hungary, where for like reasons they 
are asking for the separation of the Bank of Austria-Hun- 
gary into two banks — one for Austria, the other for Hun- 
gary. The only difference is that Italy, in preserving the 
existing regional institutions, did not succeed in the 
attempt to do the best thing, whereas Austria- Hungary 
is trying to do a worse thing in demolishing the best thing 
it already possesses. 

If this explains, and up to a certain point justifies the 
failure of all the attempts made to give, in good season, a 
more normal adjustment to the banks of issue in a 



5^ 



National Monetary Commission 

country which had, with a great effort, that was after- 
wards converted into a great sacrifice, aboHshed forced 
currency, these attempts attest simply that enUghtened 
minds understood the needs of the situation and that 
several of the men who came into power tried to provide 
for these needs. 

And without doubt, if Italy had succeeded between 
1885 and 1886 in imposing precise rules and severe regu- 
lations in a matter of so much importance, the economic 
status of the country would have been spared serious 
losses. 

The situation of the banks of issue in 1885 in com- 
parison with that in 1883 deserves meanwhile a more 
careful examination. The circulation of the six institu- 
tions shows an increase of 154,000,000 lire against a de- 
crease of 25,000,000 lire in the metallic reserve, which 
had gone down from 405,000,000 lire to 382,000,000 lire, 
while that for sight liabilities shows an increase of 
5,000,000 lire. 

At the same time, however, the metallic reserve pos- 
sessed by the treasury had diminished; from the sum of 
727,000,000 lire on May 10, 1883, of which 600,000,000 
lire had been received from the loan, it had diminished 
on June 30, 1885 to 274,000,000 lire, with a decrease of 
453,000,000 lire in connection with the decrease arising 
from the redemption in metallic money of the consor- 
tion bank notes; these had gone down from a total of 
940,000,000 lire on December 31, 1882, to 196,000,000 lire 
on December 31, 1885. 

The banks of issue began to feel meanwhile that their 
discounts were becoming burdensome. A large part of 

60 



The Banks of Issue in Italy 

the operations, especially those made in southern Italy, 
were not paid on maturity, so that renewals had to 
be granted sometimes with a slight reduction of the 
credit. And when the debtors showed that they could 
no longer meet the obligations they had assumed, because 
as a result of the agricultural crisis the property was giv- 
ing increasingly small returns, the banks took steps to 
protect themselves by obtaining mortgages as guaranties 
for their credit. 



6x 



Chapter IV. 

THE CREDIT FONCIER OR REALTY CREDITS OF THE BANCA 
NAZIONALE NEI^ REGNO d'iTAUA. 

It was in that same year of 1885 that the Banca Nazio- 
nale nel Regno established the credit foncier. Because 
of the importance it assumed in relation with the bank, 
and because of the changes to which it was subjected, 
the founding of the credit foncier of the Banca Nazionale 
formed a noteworthy episode in the history of Italian 
banking. A brief review of this event seems, therefore, 
opportune. 

As soon as the general director of the Banca Nazionale, 
Signor Giacomo Grillo, announced the intention of found- 
ing a realty credit service, there arose violent discussions 
and criticisms. It was said that a bank of issue, which 
ought to consider the shortness of duration and the 
sure recovery of its loans, could not properly take part 
in mortgage operations, by their nature necessarily for 
terms of many years, and in support of this argu- 
ment the example was brought forward of the banks of 
issue of the principal countries. The question was dis- 
cussed at length whether the proposed credit foncier, 
even though organized as the general director of the bank 
proposed, with a separate administration and technically 
autonomous, under the close supervision of the adminis- 
tration of the bank, would not end by involving the re- 
sponsibility of the latter. 

The general director defended his plan before the 
superior council of the bank and the general meeting of 

62 



The Banks of Issue in Italy 

shareholders. He argued that it was not true that ex- 
amples were completely lacking of banks of issue which 
had established realty credit departments and quoted 
those of the banks of Austria- Hungary, Greece, Scanda- 
navia, besides the two banks of Naples and Sicily, and 
expressed the conviction that by assigning to this special 
department a capital to be taken from the statutory 
reserve of the bank, available for the tenfold issue of 
realty bonds, according to the laws in force, no responsi- 
bility could fall on the Banca Nazionale. 

He then justified the founding of the credit foncier by 
the convenience of affording aid to urban and landed prop- 
erty which was suffering from a grave crisis, especially in 
southern Italy. 

In the opinion of the general director of the Banca 
Nazionale, the plan was fully justified by the disproportion 
between the needs of the urban and landed property in Italy 
and the inadequacy of the means to satisfy them. The 
law of June 14, 1866, had authorized the transaction of 
mortgage operations by the Bank of Naples, the Cassa di 
Risparmio delle Provincie lyombarde, a solid and well- 
administered institution, which was later to rise to great 
power, the Istituto Opere Pie di S. Paolo in Torino, the 
Monte dei Paschi di Siena, and the Cassa di Risparmio 
di Bologna, all solid and exemplary institutions. The 
Bank of Sicily was later, by royal decree of May i, 1870, 
authorized to carry on realty operations. Judging by 
the nature of these and of other institutions authorized 
to make mortgage loans, there is reason to believe that 
this kind of credit was regarded in Italy almost as a form 
of charity. 

39781°— II 5 63 



National Monetary Commission 

But what especially led the general director of the 
Banca Nazionale to propose the founding of the realty 
credit department was the desire to relieve the dis- 
counts of the bank of the operations which, although they 
were in appearance convertible credit, had neverthe- 
less become, for the reasons indicated, substantially real 
and proper mortgage operations, impossible to be liqui- 
dated in a short time, and guaranteed by mortgages on 
rural and urban landed property. The general director 
of the bank was moved, therefore, by lofty economic and 
monetary considerations, and judged that the transfor- 
mation, in proper form, of the discount operations now 
unrealizable was desirable not only in the interests 
of the bank, but also in the interests of circulation, 
which would be restricted by the amount correspond- 
ing to the unrealizable operations by buying in the 
realty bonds that the credit foncier administration 
issued contemporaneously with the loans. Thus it may 
be said that this consideration of general interest pre- 
vailed over the bank's own interests, which if it had kept 
for the operations their character of bills of exchange 
would have had, over against the corresponding interest 
paid by debtors, only the burden of the tax on circula- 
tion at the rate of i per cent, whereas replacing the notes 
by issues of realty bonds the bank was to pay an in- 
terest of 4 and ^yi per cent, except for the compensation 
to be derived from the profit on new banking operations, 
which could be carried on with the sums collected by 
the liquidation of old operations through the investment 
of the capital assigned by the bank to its credit foncier 
and through the sale of realty bonds. 

64 



The Banks of Issue in Italy 

But, although banking operations received a great 
impetus in consequence, nevertheless when the Banca 
Nazionale decided upon organizing the credit foncier it 
ought probably to have decided rather to restrict its action, 
because its own conditions and those of the market made 
advisable following a policy of concentration. 

In the ideas displayed on this, as on other occasions, and 
in the perseverance with which he struggled to make them 
triumph, the general director of the Banca Nazionale 
showed that he possessed rare qualities which would have 
succeeded in giving a sound direction to the bank, if the 
seriousness of the crisis which seized Italy, through a num- 
ber of causes of an economic and political nature, had not 
attacked every part of the financial, industrial, commer- 
cial, and banking activity of the country and had not car- 
ried away, like a raging torrent, even the strongest bodies 
that it encountered in its devastating course. 

The exercise of realty credit by the Banca Nazionale 
approved by the general meeting of shareholders held Feb- 
ruary 26, 1885, was authorized by royal decree on April 5 
of the same year, in conformity with the permission that 
the act of February 22, 1885, on realty credit, had given 
the Government to grant its exercise to such institutions 
as should have fulfilled the requirements of the said law. 

To the realty credit administration was assigned at 
first a capital of 25,000,000 lire, taken from the statutory 
reserve of the bank; to this were added in 1889, by a new 
decision of the meeting of shareholders, another 5,000,000 
lire, also taken from the reserve. From September 7, 
1885, the date of the beginning of the operations, to June 
30, 1893, t^G ^^te when they ceased, because of the 

65 



National Monetary Commission 

banking law then under discussion which forbade all 
further mortgage operations on the part of the banks 
of issue and ordered the liquidation of those already 
under way, the credit foncier of the Bank, with the 
30,000,000 capital, had concluded mortgage loans for 
322,825,500 lire — that is to say, through the employment 
of the capital assigned, and in conformity with the law. 

Lire. 

In 160 mortgage accounts current in cash 12, 073, 500 

In 834 loans in cash 17, 991, 000 

Total of cash operations 30, 064, 500 

In 2,470 loans in 4 per cent bonds 135, 349, 500 

In 2,675 loans in 4^ per cent bonds 157, 411, 500 

Total 322, 825, 500 

By way of proof of what has been said concerning the 
considerations that led the general director of the bank to 
found the realty credit department, it may be well to 
state that in the first few years it was feverishly active. 
In the first fiscal year requests for loans were presented 
amounting to 260,000,000 lire. In the report to the stock- 
holders for the fiscal year 1886, the general director de- 
clared: "The credit foncier of the bank has developed to a 
degree beyond all our expectations. This development 
proves very clearly that its creation answered a need felt 
by the country." By December 31, 1886, the credit 
foncier of the bank had definitely contracted for opera- 
tions amounting to about 62,000,000 lire, and had under 
examination requests for operations amounting to about 
147,000,000 lire. The greater part of the operations were 
concluded in the Province of Rome, because of the needs 
already shown by urban property in connection with the 
building movement which was in process of development 



66 



The Banks of Issue in Italy 

there, and in the provinces of southern Italy on account 
of the agrarian crisis which needed considerable help. 

In the year 1887 the operations encountered something 
of a check through the difficulty in placing the realty 
bonds, caused by a money stringency owing to stock 
exchange crises and to difficulties of the State finance which 
aroused anxiety because of a new deficit in the budget. 
However, in 1887 mortgage loans were concluded for the 
amoimt of 74,000,000 lire, and at the end of the year there 
still remained under consideration requests for loans for 
123,000,000 lire. 

In the year 1888 there was a lull in these operations, 
which amounted to 45,000,000 lire only, making the total 
for three years 181 ,000,000 lire. The general director of the 
bank announced that "the operations of the credit foncier 
have now entered upon their normal course. To the rush 
for mortgage loans of the first few years there has suc- 
ceeded an orderly and constant demand. " 

Now, it is interesting to note that out of the sum of 
181,000,000 lire in operations concluded by the credit fon- 
cier in the first three years, about 85,000,000 lire were used 
to liquidate unrealizable operations in bills of exchange 
in the discounts of the bank, and that out of a sum 
of 278,000,000 in loans made for the whole of 1890, 
135,000,000 — that is to say, nearly half — were em- 
ployed for the same purpose. 

Naturally, in view of the vicissitudes, anything 
but prosperous, through which the country passed, 
dark days were not long in coming upon the credit 
foncier of the bank as well. Borrowers were begin- 
ning to find themselves in straits, whether as a result of 

67 ' 



National Monetary Commission 

bad management of their property and ensuing waste- 
fulness of their patrimony or because the crisis from which 
landed property was suffering was growing acute, they 
commenced by being behindhand in payments of dues 
of amortizement, and ended by suspending payments alto- 
gether. The credit foncier had to put up at auction 
the mortgaged property, which, not finding purchasers, 
was adjudged to the credit foncier itself. Meanwhile, 
whether to fill up gaps which were appearing in its bal- 
ance, or whether to withdraw from the market realty 
bonds for sums corresponding to loans on property 
that had come into its possession by auction, the credit 
foncier was obliged to apply to the Banca Nazionale, 
which opened for it a cash credit. 

The further aggravation of the agricultural crisis, 
especially in the south of Italy, to which was then added 
the building crisis of Rome and other important centers 
of the peninsula, aggravated the situation of the credit 
foncier of the bank, and with it that of other kindred 
institutions. 

To remedy the situation, which was threatening to 
become serious for the realty credit institutions and their 
borrowers, opportune legislation came to the rescue, 
containing provisions which reduced the fiscal taxes 
of various kinds, prolonging terms of payment, and 
giving other facilities of mutual advantage. 

The vicissitudes of realty credit in Italy have made 
plain the dangers which can be incurred by giving 
too great facilities to credit, even in operations solidly 
guaranteed, which, through being represented on the 
market by various certificates, different from bank 

68 



The Banks of Issue in Italy 

notes, and through granting to the borrowers a long 
period of time to satisfy the obligations assumed, would 
seem to be protected from every surprise. For even 
when the borrowers, by bad administration of the 
property or through loss of their free capital, find them- 
selves in the situation of not being able to meet the 
obligations assumed, the property offered in guaranty 
should be sufficient to reimburse promptly the credit 
institution. 

But what may and does happen in normal times no 
longer happens in moments of crisis in general, and of 
crises of landed property in particular. For when the 
value of real estate as well as of securities declines, capi- 
talists are not willing to decide to profit by the decline 
and buy; they always hope and wait for prices to go 
down still lower, and finish at last, most frequently, 
by making up their minds when, after the crisis has 
passed, prices are going up again. 

Meanwhile the law of 1893, of which we shall speak 
presently, having stipulated that the realty credit depart- 
ments of the banks of issue should be liquidated, the bank 
was obliged to provide for regulating its relations with 
its own realty credit department, with the result on De- 
cember 31, 1893, of a debt of about 50,000,000 lire, over 
against which the Credit Foncier ceded to the bank 
about 17,000,000 lire in real estate (which had come 
into its possession through auction) , and other property 
belonging to it, while the bank contributed to close the 
account by deducting 30,000,000 lire from its paid-up 
capital and by using 2,802,918 lire available residue of 
a payment of 30,000,000 lire made in 1894 by the share- 

69 



National Monetary Commission 

holders to amortize bills which had become overdue 
and were included in operations of difficult and tardy 
liquidation. 

On December 31, 1908, the loans still current of the 
credit foncier of the bank in liquidation amounted in 
all to 112,392,980.70 lire, and were represented to the 
amount of about 4,200,000 lire by loans in cash, and for 
the rest by obligations in circulation for a total of 
111,181,500 lire, over against which was the assigned 
fund of 30,000,000 lire instead of 1 1 ,000,000 required by 
the terms of the law. The credit foncier had besides 
ordinary and extraordinary reserves for about 6,500,000 
lire. 

The surplus assets of the credit foncier and the very 
favorable conditions under which the liquidation was 
now going on showed that it could, in the end, indemnify 
the bank for the sacrifices it had been obliged to make 
in the past. 

The bank, profiting by the favorable conditions of the 
market, converted in October, 1903, the 4>^ per cent into 
4 per cent bonds, and in October, 1905, converted the 
4 per cent bonds into 3.75 per cent. 

The realty credit administration of the bank partici- 
pated in the founding, in 1886, of the Istituto Italiano 
di Credito Fondiario, created especially to come more 
freely to the aid of real property, which was demanding 
ever increasing assistance. The participation consisted 
in the payment of 5,000,004.10 lire in cash and in the sur- 
render of mortgage operations in cash for 9,999,995.90 — 
that is, a total of 15,000,000 lire. 



70 



Chapter V. 

EXCESS OF BUILDING AT ROME — DIFFICULTIES OF FINANCE — 
EMBARRASSMENTS OF THE BANCA ROMANA. 

Returning to the general conditions of Italy in 1885 and 
to those in which the Italian banks of issue were involved, 
it is seen that the unloading of a part of the banking 
operations made by the Banca Nazionale in its credit 
foncier administration did not diminish its discounts; 
these, contrary to the expectations and intentions of the 
bank, continued instead to increase considerably, just as 
those of the other banks of issue increased. 

Discount operations, which up to December 31, 1885 
had advanced to 617,000,000 lire, went up to 673,000,000 
lire in 1886 and to 713,000,000 lire in 1887, going down to 
674,000,000 lire in 1888 and rising to 743,000,000 lire in 
1 889, a total which was not exceeded except on the occasion 
of the crisis of 1 907. The increase in discount operations of 
the Italian banks of issue was due largely to the aid given 
by them to the building associations, which, with the haste 
that always accompanies work of a prevailingly specula- 
tive character, had undertaken to build houses in Rome 
and other Italian cities where a certain lack of buildings 
had been noticed, a lack which was especially evident in 
Rome because of the growth of population, due for the 
most part to the establishing and extending of the public 
administration in the capital of the kingdom. 

The plan of procedure of those interested in the building 
enterprise in Rome and other cities was not imlike that 
observed before and later in other countries. They began 
in Italy with the purchase of land, for the purpose of sell- 

71 



National Monetary Commission 

ing it again at higher prices; they continued by having 
recourse to credit, mortgaging the land to obtain the means 
necessary to build the first story, and so, from story to 
story, until the completion of the building. This, with 
interest and incidental expenses incurred in obtaining the 
capital, represented normally a cost to which the returns 
could not adequately correspond, in the economic condi- 
tions of the population, especially in Rome, composed 
largely of employees. 

Very soon, therefore, these building associations found 
themselves surrounded by grave difficulties. They had 
been organized partly to build dwelling houses directly, 
partly to furnish capital to private builders who had come 
in swarms on every hand, but especially from people 
least provided with capital; small contractors, and even 
simple stonemasons, had become imexpectedly and pro- 
visionally proprietors of great palaces, which the crisis, 
breaking out before long like a blast of wind, was to carry 
away from them as if they were built of the same first 
material — paper — with which the capital had been got 
together, also of paper. 

The period that elapsed between 1885 and 1890 was one 
of the saddest Italy has ever experienced. It was sad 
because of economic and financial conditions, and was not 
destined to be surpassed, even in moral seriousness, except 
by that between 1893 and 1894. The lack of a single 
powerful bank of issue made itself sharply felt at that 
time, but instead of the Government's being inspired to 
an act of salutary and heroic energy, it was persuaded to 
persist in its error. There was a considerable increase of 
circulation, which had risen from 900,000,000 lire in 1884 



72 



The Banks of Issue in Italy 

to 948,000,000 lire in 1885, to 1,032,000,000 lire in 1886, to 
1,075,000,000 lire in 1887 and 1888, and to 1,116,000,000 
lire in 1889. This increase in circulation was confronted 
by a decrease in the percentage of the metallic reserve, 
which went down from a maximum of 51 per cent in 1883 
to a minimum of 34 per cent in 1889; whereas, meanwhile, 
by the redemption of the association bank notes the State 
had considerably reduced its metallic gold reserve, which 
amounted at the end of 1889 to only 160,000,000 lire. 

The budget had closed with a surplus of 35,000,000 lire 
in 1884, of 15,000,000 lire in 1885, and of 12,000,000 lire 
in 1886, but the surplus was soon converted into a deficit 
of 57,000,000 lire in 1887 and of 230,000,000 lire in 1888. 

The rupture of commercial relations with France 
helped to aggravate the situation, because the Paris 
market, having become hostile to things Italian, began 
to sell the rentes with such fury as to make them decline 
from a maximum price of 102.55, reached in 1886, to a 
minimum of 90.80 in 1889. Consequently, through the 
return of a considerable part of them into Italy, exchange 
on Paris, which had gone down again, as we have said, in 
1883, after the liquidation of the crisis of the French 
market, to a minimum rate of 98.75, rose in 1888-89 to 
more than 102. 

Just as comfort and easy circumstances, along with 
tranquillity, lead to thoughtlessness, so difficulties and ad- 
versity lead to melancholy meditation; people reconsider 
their past course, and pass in review the causes of present 
evils. Italy found in this review the reason of the state 
of economic and financial depression into which it had 
fallen — it found it in the disorder in which the banking 



73 



National Monetary Commission 

regime had been left; in the frantic career of financial 
extravagance which had swelled beyond all the limits of 
prudence the national debt, besides exhausting the con- 
tributing power of the citizens, on whom had been imposed 
unbearable fiscal burdens. 

Naturally, in the presence of the grave embarrassments 
of a situation in which every one in the Government, in 
ParHament, and in the country had his share of responsi- 
bility, the criticism became still more bitter of the work 
of Minister Magliani, whom they wished to hold solely 
responsible for the mistakes made by all and for the con- 
sequences which had resulted from them. Above all, the 
abolition of forced currency, in presence of the reappear- 
ance of agio, was harshly criticised, and not a single one 
of the 266 deputies who had voted for it with great enthu- 
siasm, against only 27, rose to defend the minister, for 
whom, in remembrance of the great event, a gold medal 
had been coined. 

However, whatever the calm technical judgment might 
be as to the law for the abolition of forced ciu'rency, it 
should have been recognized that many causes foreign 
to it helped contribute to its failure. The abolition of 
forced currency would not have miscarried if the State 
had not recklessly plunged into all sorts of expenses for 
railroads, for public works, for the African war, and other 
things; and especially if, as had been foreseen and prom- 
ised by Magliani himself, energetic measures had been 
taken to complete the monetary programme by a careful 
regulation of the banking system. 

On the contrary, Italy was not wise enough to derive 
any salutary lesson from the experience it had gone 



74 



The Banks of Issue in Italy 

through, particularly in the question of regulating the 
banks and circulation. It may be said, rather, that the 
discovery of the abuses then revealed in that quarter led 
it to persevere and commit new and more serious errors. 
Under the pressure of the clamors of public opinion, 
partly perverted by those who had interests in perverting 
it, not only did the Government not provide promptly 
for checking and confining to its proper course the stream 
of paper money that was overflowing its banks in all 
quarters, but it listened rather to the voice of the expan- 
sionists who were accusing it of stopping the promised 
revival of the activity of the country by denying the 
necessary means for the movement of business. 

Meanwhile, at all the meetings of the councils of the 
banks of issue, the government commissioners gave warn- 
ing that they were obliged to state that the circulation, as 
appeared from the statements presented to the councils 
themselves, exceeded the legal limit. And the Govern- 
ment, on the reports of the commissioners, requested the 
banks to return to the normal limits. On their part, the 
banks replied that the conditions of the market had 
rendered necessary an enlargement of circulation, and 
they promised to return to the legal Hmits. This corre- 
spondence between the Government and the banks con- 
tinued for some time, and was one of the humorous sides 
of the ItaHan banking question, which had other humorous 
sides, although in the midst of exceedingly sad ones. 

On the other hand, at the point things had reached, it 
was not possible to proceed with very severe methods, 
because such action would have precipitated the situa- 
tion and rendered the catastrophe still more serious, just 

75 



National Monetary Commission 

as, again, granting the insistent demands of the expan- 
sionists, although putting off the catastrophe, would 
have made it more serious. Nor, for the reasons stated, 
was it possible to apply to the banks all the provisions of 
the law of 1874, which, as it had not been repealed by the 
law of 1 88 1, still remained in force. According to 
this, the increase in circulation recognized as necessary 
for extraordinary and urgent needs of commerce could 
be granted by the Government after trying two suc- 
cessive increases of the discount rate, on condition, how- 
ever, that the excess of notes should not exceed 40 
per cent of the capital of the banks; that the increase 
was not to last for a period of more than three months, 
and that the profits cleared on the operations should 
accrue entirely to the treasury. And it was even less 
possible to apply the statute under which the bank 
should be obliged to pay the State, by way of penalty, a 
sum equal to the total of the excess of circulation beyond 
the legal limit or the deficiency of the metallic reserve. 
This statute, under the terms of the established regula- 
tion, was to be appHed, after reporting the transgression 
to the Court, by the application of the penalty; it was 
seen in practice how ludicrously this extreme severity 
was eluded. 

This was the case not only because it was a question of 
provisions of exaggerated severity, but because of the man- 
ner in which the transgressions of the law had come about. 
On account of the situation which these transgressions 
had created in the country, and more especially because 
of the share the Government had had in them it could 
not condemn the banks without condemning itself. For 
it was just at this time that the intervention of the 

76 



The Banks of Issue in Italy 

Government in the conduct of the banks of issue was 
most actively and openly manifest, as will be seen later. 

However, the Government expressed the intention of 
undertaking to give better regulations to the banks, and 
presented a bill to Parliament, the third or fourth since 
the abolition of forced currency, which did not fare 
differently from those which had gone before it, and 
aroused violent discussions, polemics, and criticisms. At 
the same time the Government ordered an inspec- 
tion of the banks of issue to ascertain their conditions, 
which, especially in what concerned the Banca Romana, 
seemed very serious. A first audit of the cash of the 
Banca Romana seemed to show a deficit of 8,000,000 lire. 
The audit was suspended to make further examination of 
accounts, and when it was continued a few days later the 
cash was found to be correct. However, other irregulari- 
ties were found in the methods of issuing and destroying 
bank notes, and in general it was discovered that the finan- 
cial conditions of the bank were not sound and normal. 

Once more the Government let slip the opportunity to 
liquidate the Banca Romana or merge it in the Banca 
Nazionale, and, with the others, to create a great in- 
stitution of issue, as was already insistently demanded in 
various quarters. The bill for the reorganization of the 
banks of issue failed for the very reason that whereas 
it favored the inclinations of the ignorant crowd, under 
the influence of those who were interested in keeping up 
the existing disorder, it was in too open contrast with 
public interest and the opinion of the most competent 
men of the country. It seems that the author of the bill, 
Minister Miceli, a very commonplace man, absolutely 



77 



National Monetary Commission 

without the most elementary economic education, had 
taken upon himself the burden of coming to the aid of the 
weak. 

This bill resembled the statutes of a society for the 
guardianship of minors and the feeble-minded ; the anxiety 
not for the public interest, but for the defense of small 
banks, was evident in every part of it, so full was it of 
provisions intended to defend the minor banks from 
an imaginary danger of oppression on the part of the 
larger institutions, and especially on the part of the Banca 
Nazionale. 

It was very evident that the Banca Romana, not through 
the hostility of others, but because of its own difficulties, 
was not in a position to accomplish the redemption of 
its notes which had entered the coffers of the other banks, 
a redemption which had to be made regularly every ten 
days in conformity with the law and regulations. Not- 
withstanding this fact, the minister, instead of rendering 
the provisions on this point more efficacious, so as to make 
the Banca Romana feel more clearly the necessity of limit- 
ing its activity and restricting its circulation, proposed 
that the obligation of redemption of bank notes should be 
confined to the tenth part of the circulation of each bank. 
This was equivalent to abolishing the obligation of 
redemption between banks which, under the system of 
circulation really at forced currency, represented the sole 
and only control, the one single check on their currency. 

It may be well to say that of the six Italian banks only 
the Banca Romana demanded insistently and loudly the 
provisions relieving it from the burden of the periodical 
redemption of bank notes; and this began in 1887 — that 

78 



The Banks of Issue in Italy 

is, from the time when its situation became particularly 
unfavorable — when it had difficulty in redeeming the notes 
that were presented to it in continually increasing num- 
ber, because of the greater quantity circulating in the 
country, which tended to return to the coffers quickly. 
It was then shown that the greater the quantity of bank 
notes in circulation, at legal or forced currency, the more 
quickly they are returned to the coffers of the bank. 

With a limited field of action, for a long time confined 
to the Province of Rome alone; with a great part of its 
assets unrealizable or overdue, the Banca Romana did 
not receive sufficient payments to enable it to redeem its 
notes which entered in all the greater quantities in the 
coffers of other banks, because the public, not com- 
pletely ignorant of the difficulties of the Banca Romana, 
showed that it did not approve of the notes, and made 
haste to get rid of them. As a result the bank found itself 
obliged to resort to costly expedients, such as the sale in 
the markets of northern Italy of Italian rentes in return 
for notes of the Banca Nazionale to be presented to the 
latter in redemption of its own notes; these rentes it 
bought back at Rome with its own notes, thus disturbing 
also the home market of rentes. 

At the distance of twenty years, when the facts of the 
situation have either been forgotten or grown confused, 
what happened then in Italy may well seem incredible. 
But it must be stated and repeated that the Government 
believed the very gravity of the situation justified its 
procedure. 

Doubtless it seems inexplicable to-day that the Govern- 
ment should allow an institution of issue to violate the 

39781''— II 6 79 



National Monetary C ommis s io 



n 



articles of the law; that, also, with manifest injury to 
the other banks of issue, it should prepare to lay before 
Parliament new law^s all to the advantage of the Banca 
Romana, which was, among them all, least worthy of 
consideration; but what seems inexplicable to-day had 
at that time a reason, if not a justification, in the special 
conditions of the capital of the Kingdom, and in general 
in the ideas which prevailed in Parliament and the 
country concerning banking regulations, ideas decidedly 
and unconditionally in favor of the plurality of banks, 
the grave defects of which people either did not or would 
not see. 

The feverish expansion which the building industry 
entered upon had flooded Rome with a new popula- 
tion, composed largely of farmers who abandoned the 
country, attracted by the seductions of the city and the 
easier living offered by the work of building. The Banca 
Romana, hard pressed by its difficulties, and not being able 
to redeem the notes that were presented to it from other 
banks, turned to advantage the conditions created in the 
capital by the great mass of workmen who had swarmed 
there for the work of building, and declared that if it 
were forced to redeem its notes, it would be absolutely 
obliged to suspend operations; it did not fail to depict to 
the Government all the consequences that would follow 
the suspension of the work in Rome, and of the idleness 
of thousands of workmen. And since there were news- 
papers on hand that obligingly echoed this anxiety of the 
Banca Romana for the well-being of the working classes, 
and for the tranquillity of the capital of the Kingdom, the 
workmen began to grow restless and threatened to make 

80 



The Banks of Issue in Italy 

trouble, which naturally exercised a certain influence on 
'the men who were in the Government, at a time when 
labor disorders, agitations and strikes had not yet become 
national institutions, as it is now the case. 

Nor was the conciliatory and benevolent attitude of the 
Government toward the Banca Romana due to this 
alone, for the bank managed cleverly to touch and make 
vibrate other strings of its instrument. It had succeeded 
the ancient Bank of the Papal States; it was given the 
monopoly of issue of these same States ; it was in posses- 
sion of special privileges, so that, as we have seen, the 
papal government itself had undertaken to guarantee its 
notes. In view of all these things, the Banca Romana 
did not let slip the opportunity to bewail the happy time 
in which it was absolute mistress without rivals and with- 
out enemies. And it turned to account the parochial 
sentiment of the population, making it seem that its 
adversaries were attempting to oppose in it the only 
local financial institution in hatred for the city. Having 
placed the question on this basis, it was easy for the 
Banca Romana to find adherents and helpers, and to 
win over the sympathy of part of the population, all the 
easier to obtain since the Banca Romana seemed to be 
the victim of the new elements which had come to Rome 
from other provinces and were fighting in it a Roman 
institution. 

Henceforth there were few who were not persuaded 
that the Banca Romana was a victim and that the 
Banca Nazionale, which had long cherished the plan of 
becoming sole bank of issue, was trying to throttle it. 
And though even after the discovery of the disastrous 



8i 



National Monetary Commission 

situation of the Banca Romana the beUef in this legend 
still persisted, just as many people in Italy and elsewhere 
still believe it even to-day, nevertheless, as it will be easy to 
prove, it is nothing but a fiction cleverly foisted on the 
public; and since the relations existing between the 
Banca Nazionale and the Banca Romana and the results 
that came from them are of an interest which transcends 
historical curiosity and makes clearer one of the vices 
of the plurality of banks, it does not seem superfluous 
to reestablish the truth of these things. 

That Signor Giacomo Grillo had become a decided 
partisan of the superiority of the unity of issue after the 
painful experiences caused by plurality is a fact beyond 
all doubt; but being a man of exemplary uprightness and 
loyalty, he wished the desired end to be attained, in the 
interests of the country, by the common consent of the 
various banks of issue and the Government, and the 
approval of Parliament. Consequently, he attempted 
several times to negotiate a fusion, both with the 
Banca Nazionale Toscana and the Banca Romana. 

But the situation of the latter bank, as was shown 
later in 1893, was an obstacle to any sort of agreement, 
since consenting to a fusion would have meant reveal- 
ing the ruinous condition it was in. For the rest, the 
personal relations of the general director of the Banca 
Nazionale with the governor of the Banca Romana were 
marked by the most sincere cordiality, and when the 
Banca Romana began to find itself in difficulties and 
unable to redeem its notes, the general director of the 
Banca Nazionale was liberal in making concessions to it. 
He consented to keep back in the coffers of the Banca 



82 



The Banks of Issue in Italy 

Nazionale as much as 4,000,000 lire in bank notes of the 
Banca Romana without demanding redemption; and 
since, later, this sum subtracted from the obligation of 
redemption proved insufficient, the general director will- 
ingly consented to the recommendations made by the 
Government to show the greatest consideration for the 
Banca Romana, and declared that his attitude was con- 
ciliatory; and on September 24, 1890, he laid the situa- 
tion before the superior council and proposed to increase 
froru 4,000,000 lire to 6,000,000 lire the fund of notes of 
the Banca Romana to be held back from redemption, 
especially as the Government had consented to free from 
taxation a corresponding sum of notes of the Banca 
Nazionale. 

The council, although expressing its anxiety for the 
responsibility which the Banca Nazionale was assuming, 
approved the proposal of the general director. October 
22 of the same year, after fresh recommendations from 
the Government, the general director advised increasing 
to 9,000,000 lire the cash credit opened for the Banca Ro- 
mana; by this, with the fund held back and the cash credit, 
the Banca Nazionale had consented to withhold from the 
obligation of redemption 15,000,000 lire in bank notes 
of the Banca Romana, which then had a circulation of 
74,000,000 lire. 

But this is not all: as a result in 1894 of the Govern- 
ment investigation of .banks, it was found that in 1888, 
at the time of the inspection made of the Banca Romana, 
the general director of the Banca Nazionale, on a simple 
request from the Governor of the Banca Romana, had 
consented to pay over to it the sum of 8,000,000 lire, which 



83 



National Monetary Commission 

amount was supposed to have been used to fill up the 
deficit discovered in the first audit of the cash. 

The discovery of the loan made by the Banca Nazionale 
to the Banca Romana suggested to Deputy Cavallotti the 
idea of making an inquiry of the Government as to the 
relations between the general directors of the two banks. 

So Signor Grillo, reputed to be a most bitter enemy of 
the Banca Romana, appeared now as an accomplice in the 
misdeeds of this bank, for which it was believed he had 
furnished the means to make up a cash deficit! Deputy 
Cavallotti, warned of the grave error into which he had 
fallen in suspecting an understanding between the heads 
of the two banks, refused to lay his question before the 
Chamber of Deputies, even though the theme, however 
absurd, must have seemed attractive, since to attack and 
fight the Banca Nazionale and its administration had 
always been and was still a popular and meritorious 
undertaking. 

In fact, if the Government, in the difficult moments the 
country went through, which had made perfectly evident 
the deficiencies of the banking system, still hesitated to 
make the timely provisions, it was certainly not because 
of unjust compromise or for unworthy reasons; but it 
was on the one hand from the anxiety not to create 
more serious embarrassments in the country by disturb- 
ing the state of things which had grown up, and on the 
other hand, from the persuasion that any bold and radical 
plan of banking reform would fail in the face of the coali- 
tion of those interested in maintaining the banking system 
then in force. There is no doubt that a very great ma- 
jority of the Chamber was in favor of the plurality of banks 



84. 



The Banks of Issue in Italy 

because of considerations of a regional nature. And, 
indeed, whether from fear of being suspected interested 
partisans of the Banca Nazionale, or for other reasons, 
the fact is that never did a single deputy rise in the 
Chamber to call to mind its meritorious service or to de- 
fend its interests, ever one and the same with those of the 
country, whereas the guardianship of the interests of the 
minor banks always found strong and zealous champions. 

In examining in 1893 the banking bill presented by the 
Government an influential deputy felt obliged to write that 
the plurality of banks was one of the most precious con- 
quests and unchanging principles of the former party of 
the Left of the Italian Parliament. 

Francesco Crispi, in the presence of the severe criticisms 
aroused against the bill presented by Minister Miceli, was 
persuaded of the necessity of a change of direction. Al- 
though he did not have the clearness of ideas that results 
from complete knowledge of the subject, he had, however, 
the broad insight that Italy needed to lay aside a hybrid 
banking system which had been shown in every respect to 
be pernicious, and he felt the noble ambition to provide the 
country with a powerful institution, which, after the exam- 
ple of France and England and other countries, should be 
an effectual regulator of the currency and a strong pro- 
tector for State and people in difficult moments. 

Having set aside the Miceli project, he called to Rome 
Francesco Ferrara, the glory of economic science, and gave 
him the task of studying the very serious question and pro- 
posing for it the solution which best answered the situation 
of Italy at that moment. This illustrious man, who was 
the most weighty champion of economic liberty, and who, 



85 



National Monetary Commission 

as deputy and minister, had fought every idea of monopoly 
and had flung himself violently against the close relations 
which had existed in the past between the State and the 
Banca Nazionale, was not deaf to the clear call of the situa- 
tion and ended by recognizing that even Italy would, like 
other countries, derive marked benefit from the action of 
a great central bank of issue. 

But the ministry presided over by Francesco Crispi fell 
before he had been able to give concrete form to his plan; 
it fell, it was said, perhaps not without truth, for the very 
reason that it had expressed the bold intention of creating 
a sole bank of issue — and the banking confusion continued. 

The Italian Government, for the reasons stated above, 
not only did not know how, did not wish to, and could not 
intervene energetically to reform the currency, but was 
itself the cause of its growing worse. And yet, however 
much political animosities, impelled by that instinct of 
cannibalism which is the principal characteristic of the 
politician, attempted to shatter the reputations of those 
who were in the Government at the time of the banking 
disorders, we must repeat that, save for minor exceptions, 
the men who came into power gave a lofty example of 
honesty and rectitude. The intervention of political 
power in banking affairs may, from certain points of view 
and with due allowance for the grave difficulties through 
which Italy passed, be considered untimely and harm- 
ful; but at the same time it must be acknowledged up- 
right in the intentions that counseled it, which were 
always prompted by the desire to spare the country 
serious disasters. 



86 



Chapter VI. 

THE BUII.DING CRISIS AND BANKING SUBSIDIES. 

We have already seen the procedure of the building 
industry at Rome and how it was based essentially on 
credit. We should add that when the slender funds were 
exhausted that the building associations and other banking 
firms could place at the disposal of the building industry, 
it was necessary for the builders and manufacturers who 
were connected with the building movement of Rome and 
the other cities to discount and rediscount their paper with 
foreign banks and institutions, especially in France and 
Switzerland. 

Now, it was precisely in the years 1887 and 1889 that 
the close relation that exists between the economic con- 
ditions of a country and those of public finance was once 
more made evident; it was manifest how easy it is, some- 
times unavoidable, for the disorders of the latter to exer- 
cise an immediate direct effect on the former; just as 
impaired finance damages the public economy, so the bad 
conditions of the public economy are reflected unfavor- 
ably on finance. The unfriendliness of the Paris market 
at this time, due to misunderstandings that were fortu- 
nately cleared up later, had, as we have already said, in- 
flicted considerable losses on Italian rentes and likewise 
on other Italian securities owned in that and other for- 
eign markets, with the inevitable effect of the excessive 
rise in exchange. The principal cause of the decline in 
Italian securities and the rise in exchange was the unex- 
pected appearance in the budget of a deficit of 230,000,000 

87 



National Monetary Commission 

lire, of which 126,000,000 Hre were due to an increase in 
military expenditures, besides a deficit of 235,000,000 lire 
in extraordinary expenditures for building railroads. 

The situation seemed disquieting also because specu- 
lators interfered to aggravate it to their own advantage 
by manipulating prices downward. It was then that the 
foreign banks and bankers who had given extensive credit 
to building associations and builders made it plain that 
they were not only not disposed to give further discoimts 
to either of them, but also that they would refuse to 
renew the current operations, of which they were de- 
manding immediate payment on maturity. From an 
approximate estimate, inferior to the reality, it appeared 
that the paper coming from the building industry and 
discounted abroad amounted to about 350,000,000 lire. 
The threat, already acted upon here and there, of demand- 
ing immediate payment of this paper made the situation 
appear very serious, since it would cause as an inevitable 
consequence the failure of the building associations and 
perhaps, too, that of the principal credit institutions 
whose interests were now closely allied with them. And 
as the disturbance of the public finances had had a large 
share in provoking the impending crisis of the market of 
Italian securities, this crisis would, in its turn, aggravate 
the financial and monetary crisis. In order to ward off 
such a great misfortune the Government intervened ener- 
getically with the banks of issue, and particularly with 
the Banca Nazionale, asking it to come promptly to the 
help of the building associations, in order to put them in 
a position to meet the obligations assumed toward for- 
eign banks and bankers. The discussions were long and 



88 



The Banks of Issue in Italy 

violent. The Banca Nazionale hesitated, and did not fail 
to measure the possible danger it was about to incur; but 
it finally acted on the high moral consideration of avoiding 
a crisis which would make Italy appear a country in dis- 
graceful bankruptcy. This consideration and the very 
serious anxiety as to the consequences that would result 
for the country led the Banca Nazionale to give extensive 
aid to the building industry threatened with disaster. 

This happened, too, because in the last analysis the con- 
viction prevailed that everything would be straightened 
out without loss. The faith in a prosperous future for the 
capital of the Kingdom seemed to assure a favorable out- 
come for these banking and building subsidies at first con- 
sidered as dangerous. And we must not forget that what 
helped to overcome the resistance of the bank, and led it 
to intervene, was the belief that it could save the amounts 
which had already been involved in the first aid given to 
the building industry. The most difficult thing in busi- 
ness is always knowing how to lose a small amount at the 
proper time in order to avoid losing a larger sum later. 
And that is exactly why those who are in need of help 
always ask for a part of what they need to save their 
situation, calculating that the rest will come later, because 
a person who has given the first part will not wish to lose 
it, and to save and secure it will give the rest as well. 

Another thing, too, that argued in favor of the subsidies 
was the desire to avoid the losses that would come upon 
the bank, directly and indirectly, from the ruin of the 
building and credit companies, all, as we have said, more 
or less largely involved in the building enterprises of 
Rome and other cities. 



89 



National Monetary Commission 

It may be said, however, that there prevailed at this 
moment an optimistic opinion concerning the outcome of 
the operations in favor of the building associations; but 
such an optimistic opinion was too much like the argu- 
ments with which one tries to justify a step which it is not 
possible to retrace, or the necessity of meeting an obliga- 
tion that is not approved of, but can not be put aside and 
declined. 

The very serious and not unjustified anxiety of this mo- 
ment took away from the Government and the banks the 
freedom of choice; it hindered the calm examination of 
the situation and the exact estimate of the losses which, 
in comparison with the benefits expected, would result 
from their intervention. 

In the report to the shareholders on the operations of 
the year 1889, the general director of the Banca Nazionale 
declared : 

"Meanwhile we have been obliged to witness a greater 
aggravation of the building crisis, in consequence of the 
continued withdrawal of foreign capital which had lib- 
erally subsidized the speculation in building in more than 
one of our cities and had stimulated its excesses; from 
this, therefore, arose the banking crisis of Turin, the bad 
effects of which reacted on other regions. 

"And as if all this were not enough, we had the increas- 
ing distrust on the part of capital, encouraged by the cor- 
rupt passion for destruction that seizes everything and 
everybody and grows strong and rejoices in the ruin and 
disgrace which it creates around itself; distrust also en- 
couraged by the frenzy of speculators who do not know 
the bounds of rectitude and honesty, and who recognize 



90 



The Banks of Issue in Italy 

no check, not even the consideration of the serious 'harm 
they are inflicting on the economy of the country. 

"These in broad outHnes are the conditions under 
which business was done during the financial year of which 
we must speak to you; the difficulties our institution had 
to encounter during the year are connected with them. 
This action, you will acknowledge, gentlemen, could not 
be calm and normal. 

" It was not possible to limit it to the ordinary subsidies 
that a bank of issue distributes to merchants and manu- 
facturers to aid in their development and expansion. 
We have not neglected the discharge of this function, but 
we have likewise been obliged to listen to the call of other 
duties and to fulfill them. An institution like ours could 
not be indifferent to such unusual events and misfortunes 
as those of this past year. When credit is so violently 
beset, as was the case especially in the second half year, pri- 
vate interests placed in jeopardy take such forms, threaten 
to multiply in so many and such ways, that they assume 
the character of high public interest, which claims protec- 
tion by the energetic intervention of the Government and 
the institutions to whom is intrusted, by the reason of their 
own character and also for their own protection, the de- 
fense of the public credit both at home and abroad. And 
so, gentlemen, when the danger of failure first threatened a 
well-known credit establishment, which until recently had 
enjoyed the greatest confidence, the Government, foresee- 
ing the very disastrous consequences, widespread beyond 
all measure, that would result from this failure, urged the 
larger establishments to come to the aid of the situation. 
The Banca Nazionale consented and, deciding that in the 



91 



National Monetary Commission 

market of Turin were concentrated the interests of other 
regions, helped it liberally. Then the bank judged advisa- 
ble to stipulate an agreement with the Government ena- 
bling it to count on an increase of circulation of 50,000,000, 
so that the help given in that special direction should 
not render its available funds insufficient for ordinary 
operations. 

" The sum of 50,000,000 was only a part of that already 
distributed and still remaining to be distributed in order 
to avoid the catastrophes threatened in every direction, 
but we did not ask for more, bearing in mind always that 
an excessive increase of circulation brings evils outweigh- 
ing the monetary advantages derived from it. On the 
other hand, we calculated that the contraction of business 
in general, which was already visible and promised to 
increase in the near future, would justify us in devoting 
to that purpose also a part of the ordinary disposable 
funds. In the agreement which we have just outlined 
the Government reserved for itself part of the profits on 
operations made with the 50,000,000 excess of circulation 
authorized at the rate of i per cent on the excess profits 
that should result within the limits of 50,000,000. 

"After this agreement we were able to arrange terms 
with the Banca Tiberina, key of the situation, for the 
well-known subsidy of 40,000,000, including in this sum 
the amount for which we were already involved. The 
operation was of necessity made and carried through by 
discotuiting paper having the forms required by our 
statutes. Further subsidies were afterwards granted in 
the same manner to the Compagnia Fondiaria Italiana 
and others. 



92 



The Banks of Issue in Italy 

''This large assistance given for the purpose of saving 
the country from widespread and inevitable ruin, the 
extent and consequences of which it was not and is not 
possible to measure, received comments of various kinds; 
but we do not deem it necessary to go into them deeply 
with you. We will only say that, before and after, we 
were more sensible to those who blamed us than to those 
who praised. If we had decided not to yield there is 
good reason to believe that the censures would have been 
much more severe on the day when the Banca Nazionale, 
on which everybody's eyes were fastened, allowed ruin 
to pile upon ruin, showing for the first time an impas- 
sivity in contrast with its not inglorious past, and with 
the aims which must always be present to the adminis- 
tration. 

"We have used every means to protect your interests 
from being compromised by the special operations which 
were concluded, and we venture to believe that, within 
a period the duration of which we can not up to the pres- 
ent moment foresee, these operations will fulfill our ex- 
pectations and give a proper compensation to our efforts 
and your rightful interests." 

In the very grave anxieties set forth with so much 
efficiency the general director of the Banca Nazionale was 
unwilling to take into account that the building crisis, 
henceforth inevitable and on the point of breaking out 
with great violence, was due to the excess of production 
of a commodity which could not be sent to another mar- 
ket to be disposed of, but would be obliged to wait on 
the very place of production for the purchaser who would 
come only tardily through the natural but slow increase 



93 



National Monetary Commission 

of population ; that consequently capital would remain a 
long time without interest and would diminish auto- 
matically. Even less did anyone think of studying the 
number of vacant apartments and the annual in- 
crease of the population, in order to get at least an 
approximate idea of the time that would elapse before 
the houses would be inhabited and the capital involved 
receive a return. Neither did they consider that, in any 
case, investments such as those solicited, even if they had 
been solidly and abundantly secured, were neither suitable 
nor advisable for banks authorized to issue notes, for 
these banks would thus tie up a large part of their avail- 
able cash, with the certain reaction upon conditions of 
circulation and credit in general. 

The seriousness of the situation, the terror because 
of the imminent peril, and the urgent need of relief made 
imperative, seemingly, the intervention which the Govern- 
ment not only urged on, but also cooperated in; for, 
although it was anxious about the already abnormal 
conditions of the circulation of the Banca Nazionale, 
it consented to arrange with it the agreement men- 
tioned in the report of the general director, and, besides, 
put at the disposal of the bank a sum of 15,000,000 lire 
in silver to cover a like sum of bank notes, on condition 
of having 40 per cent of the profits of the operations 
the bank carried on with it. The plan for the State's 
sharing in the profits of these extraordinary operations 
is the proof of the prevailing optimism, spontaneous 
or reflected. People talked and made arrangements 
about profits, not foreseeing, even distantly, losses; 
since the worst that was feared could happen to the banks 



94 



The Banks of Issue in Italy 

was to be obliged to wait too long for realizing on their 
credit. What is more, the smaller banks all expressed 
their resentment at being excluded from such a mag- 
nificent banquet, served up by that contract to the single, 
privileged Banca Nazionale, and a chorus of many voices 
united in upholding the complaints of these institutions. 

This incident is recorded here because, in the presence 
of the tardy, bitter censures against the Government and 
the Banca Nazionale which arose after people had been 
able to ascertain the futility of subsidizing the building 
industry and the institi^tions that were interested in it, 
and the gravity of the losses which the bank and the cur- 
rency of the country suffered from it, it is well, for the 
sake of historic accuracy, to state that the Government 
was prompted, and even incited, by public opinion that 
demanded the avoidance of the impending ruin. 

It is enough to reread what was written in the news- 
papers of the time to get an exact idea of the status of 
Italian public sentiment on this question. A few isolated 
voices were raised then to give warning that bank notes 
were not made for the use to which they had been put, 
and that it was a grievous mistake to throw the good 
money of the banks after the bad money of a wild specu- 
lation already condemned to fall beneath the weight of the 
errors it had committed; but these voices were drowned 
in the clamors of the crowd, and they were attributed to 
Cassandras, predicting the ruin of the country, or to bear 
operators who selfishly desired that ruin and were waiting 
to speculate on it. 

Whatever judgment may be passed now on the help 
given at that time by the Italian banks, by direct inter- 

39781°— II 7 95 



National Monetary Commission 

vention, and that too with the participation of the Gov- 
ernment, help which constituted, again, through the 
consequences that grew out of it, one of the most note- 
worthy episodes in the history of ItaHan banking, it 
must in all truth be acknowledged that the Govern- 
ment itself was moved by the praiseworthy intention 
of avoiding a crisis that would have jarred to the foun- 
dations the whole financial and economic edifice of the 
country, and that the banks which seconded it were 
inspired by the same patriotic desire for the public good. 



96 



Chapter VII. 

CONDITIONS OF CURRENCY IN 189O — MUTUAL REDEMPTION 
OF NOTES AMONG THE BANKS OF ISSUE — SCHEMES FOR 
BANKING REFORM. 

There is no doubt meanwhile that as a result of the ex- 
traordinary operations concluded by the banks in favor 
of the building industry, the conditions of the currency 
were growing worse. On December 31, 1890 the notes 
amounted to 1,126,000,000 lire, while the metallic reserve 
was 358,000,000 lire, with a diminution of 26,000,000 lire 
in comparison with the end of 1889. The proportion 
between the reserve and the notes in circulation had gone 
down from year to year from 34 per cent to 32 per cent, a 
minimum never reached until then. 

On the other hand, an amelioration was noted that 
year in the State finances and even in economic con- 
ditions in general. The budget had gone from a deficit of 
230,000,000 lire in 1888 to a surplus of 23,000,000 lire in 
1889 and of 46,000,000 lire in 1890. The commercial 
movement, which had reached the maximum in 1887 of 
2,610,000,000 lire in the aggregate, including imports and 
exports, had fallen in 1888 to 2,066,000,000 lire rising again 
to 2,341,000,000 lire in 1889 ^^^ falling to 2,214,000,000 
lire in 1890. It may be well to add that these differences 
were due for the greater part to the vicissitudes of the 
building industry, which swelled the total of imports in 
1885 to 1,460,000,000 lire, to 1,458,000,000 lire in 1886, 
and to 1,605,000,000 lire in 1887, as a result of buying 
abroad materials needed for building. In 1888 the im- 
ports fell from 1,605,000,000 lire to 1,174,000,000 lire. 

97 



National Monetary Commission 

But the keenest scrutinizers of the labyrinth of the 
budget did not indulge in any vain illusions ; they knew 
very well that the surplus had been obtained in part by 
disposing of treasury money and by various expedients 
of the treasury, while the increase of certain returns was 
derived from new tortures imposed on the citizens whose 
tax-paying power would soon be exhausted. 

Indeed, the least hopeful forecasts were confirmed by 
the facts in the following year in which reappeared a deficit 
of 48,000,000 lire, and the commercial movement showed 
in comparison with 1889 ^ loss of 212,000,000 lire; rentes 
at Paris went down from 95.50 to 87 and exchange rose 
from 100.65 to 103.80. The currency remained unchanged 
in spite of the decrease of 100,000,000 lire in the discoimts 
of the banks, because the treasury, to provide for its needs, 
had received from them 123,000,000 lire of statutory loans. 

To meet the deficit ascertained in the State budget, the 
minister of the treasury, Grimaldi, a clever and very fluent 
talker, but without sound economic and financial educa- 
tion, had proposed a series of provisions suitable to assure 
an equalization, among which was another bill on the 
banks of issue which would have given the treasury an 
added income of 4,000,000 lire. 

At that point came the already mentioned downfall of 
the ministry presided over by Francesco Crispi, which was 
succeeded by the Rudini Ministry, whose minister of the 
treasury was Signor Luzzatti. Being a profoimd analyst 
and acute observer of the mysterious Isis of the budget, 
possessed of a broad knowledge of economics, Signor 
Luzzatti, who enjoyed deservedly a great and undisputed 
authority in Parliament, seemed to be the man best fitted 



98 



The Banks of Issue in Italy 

to dominate the difficult situation. Therefore the belief 
that he would be able to think out the plans for giving 
a stable reorganization to finance and currency was fully 
justified. 

But at the end of June of this same year of 1891 there 
came to an end not only the legal currency of bank notes, 
which, prolonged by the law of April 7, 1881 through 1883, 
had necessarily, by the needs of the situation, been con- 
tinued from year to year; but another thing came to an 
end also — and this was the privilege granted to the 
banks of issuing notes. But while on the one hand a 
favorable occasion presented itself for taking up once for 
all the weighty problem of banking reorganization, which 
the failure of all the schemes presented through the deter- 
mined opposition they had encountered had now caused 
to be regarded in the light of one of those electrical 
machines that are "dangerous to touch," on the other 
hand, the distress of the times and the many duties with 
which the new minister of the treasury was obliged to 
occupy himself, made it impossible to apply anything but 
temporary remedies. In fact, on May 28, 1891, Signor 
Luzzatti presented to Parliament a bill to prolong the 
privilege of issue of bank notes and their legal currency 
to the end of December 31, 1892. The well-known dis- 
orders of the circulation, which exceeded by more than 
170,000,000 lire the limit fixed by the law, demanded, 
likewise, some precaution calculated at least to pre- 
vent it from being still further inflated. The new law 
stipulated^ that the circulation of each bank should not 
exceed the average reached in the year 1890, except when 
it remained less than four times the paid-up capital, in 



99 



National Monetary Commission 

which case it could reach this Hmit. The tax on circula- 
tion was fixed at i .20 per cent besides the two-tenths — that 
is, 1 .44 per cent. For the excess beyond the legal limit, or 
for the deficit of metallic reserve, which was to cover in the 
proportion of one-third both the bank notes and sight 
liabilities, the bank should pay a tax equal to double 
the discount rate. 

The law stipulated that, within six months of its pro- 
mulgation, each bank should present to the minister of 
agriculture, industry, and commerce a detailed statement 
of the situation of discount operations of difficult and un- 
ready realization or overdue and unpaid, and of real estate 
undertakings and credit of all kinds secured by mortgage 
guaranty. The limit of six months was extended by the 
committee of the Chamber to one year; but the ministry 
did not consent to the modification, so that the shorter 
limit of six months remained which the ministry had fixed, 
evidently with the determination of knowing without delay 
the situation of the banks of issue, in order to have stand- 
ards to refer to in framing an organic law. 

Each bank was to accept in payment the bank notes 
of the others. The Government reserved the right 
to establish within two months, after conferring with 
directors of banks, the rules to regulate the mutual re- 
demption of the respective bank notes. 

On the lump sum of 171,683,152.24 lire, which was the 
maximum amount of the loans the banks were to make to 
the treasury , including a loan extraordinary of 68 , 1 83 , 1 5 2 . 24 
lire, the banks were to receive 2% per cent interest and 
pay the circulation tax of i per cent. 



100 



The Banks of Issue in Italy 

The regulations above mentioned, and especially the 
one which obliged the banks to present within six months 
a statement of the operations not paid on maturity or of 
unready realization and such as were secured by mortgages, 
were intended to check the activity of the banks and to 
reveal their condition. This law, framed under pressing 
necessity, was, however, the prelude to a more organic law 
that the Government promised to present in the interval 
between July i, 1891 and December 31, 1892, the term of 
the prolongation of the privilege granted to the banks to 
issue bank notes and of the legal currency of these notes, 
as indeed the same ministers had declared in their report 
on the bill. 

In conformity with the promise made, the ministry 
presented on April i, 1892 an organic bill of which it 
will be well to give an outline, because it showed how, in 
spite of the well-known inferiority of the plurality of 
banks, in spite of the proof of the grave losses it had 
caused to Italy, it was not possible to reach the unity of 
issue notwithstanding that, as it appeared through the 
tendencies of the bill, the Government seemed to be in 
principle favorable to it. 

But before proceeding to the examination of the bank- 
ing bill, it will be well to consider an episode which gave 
rise later to bitter censure against the minister of the 
treasury and the minister of agriculture, industry, and 
commerce. As we have seen, an article of the act of 
June 30, 1 89 1, authorized these ministers to establish 
within two months, by royal decree, the rules relating to 
the mutual redemption of notes among the banks of 
issue, after conferring with the various general directors. 



lOI 



National Monetary C ommis s io 



n 



Now, it happened that at the expiration of the estabHshed 
term the ministry announced the intention of pubHshing 
the royal decree by which it was stipulated that the obliga- 
tion of redemption of bank notes should be limited to the 
total of the notes issued by the creditor bank possessed 
by the debtor bank. The creditor bank, therefore, was 
to take over any excess and employ it in its own opera- 
tions; all this in accordance with the established agree- 
ments. 

The director general of the Banca Nazionale objected 
that according to the agreements it had been stipulated 
that the experiment was to be made for a sufficient time to 
make it possible to see if, as he maintained, the proposed 
method would give rise to inconveniences. But, since the 
Banca Romana, supported by other banks insisted, 
declaring again that the obligation of redemption of its 
notes would reduce it to the condition of suspending 
operations, the decree was published. 

After the failure of the Banca Romana in 1893, with 
the revelation of its very grave irregularities, bitter dis- 
cussions aroused as to its relations with the Government. 
Politicians and the press, in trying to place the responsi- 
bility, called to mind the decree of 1891 on the mutual 
redemption of notes and reproved the ministers who had 
complied with the urgent request of the Banca Romana, 
whose bad situation they must have known. Those who 
expressed this opinion had evidently forgotten that, more 
than the ministers who made the proposal, the committee 
of the Chamber, the faithful interpreter as it considered 
and called itself of the opinion of the Chamber, had been 
favorable to the lightening of the obligation of the mutual 



102 



The Banks of Issue in Italy 

redemption of notes. The spokesman of the committee of 
the Chamber had complained that in the report on the 
bill for the abolition of forced currency, similar relief had 
been planned and promised in the matter of the mutual 
redemption of notes, and said: " This promise still remains 
unfulfilled, and the committee is distressed because the 
Government has not seized the opportunity, in presenting 
this bill, to propose frankly the solution of the problem. 
Lacking this the committee itself would not have hesitated 
to frame a definite resolution if the idea had not pre- 
vailed, shared also by the proposing ministers who had 
come into its midst, that it would still be better to try a 
solution based on an agreement among the banks." 

*'In every way the committee approves the standards 
set forth in the legislative provisions to that effect pro- 
posed by the Government; and therefore it accepts arti- 
cle 4 of the ministerial act, proposing fiurthermore that the 
royal decree shall be issued within two months from the 
publication of the law, and this in order to assure attain- 
ment of the desired end, and to prevent further delays 
which the past has given reason to fear." 

Since the Banca Romana was relieved, first through the 
Government's interposition and the considerateness of 
the Banca Nazionale, then by laws and royal decree, of 
the obligation of redeeming its notes, and since this relief 
was the cause of its being able to violate the law anew 
more freely and more recklessly, until it reduced itself to 
a disastrous condition, the inquiry into the responsibility 
on this most important point appears fully justified. 
Now, from the words of the spokesman of the committee 
quoted here, it is seen very clearly that the ministry had 



103 



National Monetary Commission 

not, in its somewhat hesitating procedure, entirely satis- 
fied the desire of the committee and the Chamber; the 
committee was distressed because the ministry had not 
dared to solve the problem more quickly; to be more 
specific, it wished to insert a modification, approved by 
the Chamber, by which the Government was obliged to 
present the royal decree within two months of the publi- 
cation of the law. All this confirms, in an eloquent way, 
all that we have said about the surrounding conditions 
of the Italian Parliament with regard to the banking 
problem in general and the relations among the various 
banks of issue in particular. The solicitude of the Gov- 
ernment for the minor banks, which has been pointed 
out in connection with the bill presented in 1888, was 
nothing but acquiescence in the sentiment prevailing, for 
reasons and considerations of a regional nature, in the 
Italian Parliament. 

And, in particular, as for the accusation made against 
Signor lyuzzatti of not having opposed the publication 
of the decree which effectively abolished the mutual 
redemption of notes, when he certainly must have known 
the ruinous conditions of the Banca Romana, it must be 
stated that he was absolutely ignorant of those condi- 
tions. Nevertheless, Signor Luzzatti, not being per- 
fectly tranquil about it, had intended to arrange for an 
unexpected examination of the Banca Romana before 
presenting the bill of 1891 and consenting to the publica- 
tion of the decree on the mutual redemption of bank 
notes ; and he had mentioned this plan of his to the general 
director of the Banca Nazionale and the general director 



104 



The Banks of Issue in Italy 

of the treasury, Signer Carlo Cantoni; these men, of 
one accord and insistently, advised the minister against 
making the inspection. Signor Grillo, supposed to be 
such a bitter enemy of the Banca Romana and its gov- 
ernor, declared to Signor Luzzatti that it was his 
firm conviction that the Banca Romana was in perfect 
order; and judging its governor too shrewd to have 
fallen again into past errors, concluded by advising the 
minister against making a fruitless inspection which would 
''raise an uproar in the camp" and disturb the market, 
which was already getting out of control. Besides, it is 
well to call to mind that, as it was ascertained in the year 
1893 by the parliamentary committee of inquiry on the 
banks of issue, the minister of agriculture, industry, and 
commerce had also maintained that an unexpected exami- 
nation of the Banca Romana would be neither useful nor 
opportune. 

In the meantime the Government had published the 
decree that in execution of the law recorded June 30, 
1 89 1, fixed in the following figures the maximum amount 
of notes the banks could keep in circulation at the ratio 
of four times the paid-up capital for banks that have 
shareholders, and of four times the free capital possessed 
by the two banks at Naples and Sicily: 

Lire. 

Banca Nazionale nel Regno 600, 000, 000 

Banco di Napoli 242, 160, 600 

Banca Nazionale Tuscana 84, 299, 900 

Banca Romana 70, 019, 500 

Banco di Sicilia 48, 000, 000 

Banca Toscana di Credito 20, 000, 000 

1 , 064, 480, 000 



105 



National Monetary Commission 

an excess of 308,750,000 lire beyond the amount granted 
by the law of April 30, 1874, ^^ excess which thus became 
legalized. 

This situtation, however, being considered abnormal, 
the Government, as we have seen, had decided upon 
presenting an organic bill on the institutions of issue. 
Meanwhile the articles of the law of June 30, 1891, by the 
penalties to be applied in case of an excess of circulation, 
and by the necessity of the metallic reserve of one-third 
as a cover for the circulation, had helped slightly to 
improve the situation. 

From June 30, 1891 to February 29, 1892, the circulation 
was diminished from 1,139,000,000 lire to 1,030,000,000 
lire; the reserve was increased from 425,000,000 lire to 
435,000,000 lire. 

The bill for the regulation of the currency, presented 
by the Government April i, 1892, deserves to be examined 
specially, as we have said, in the part which reveals its 
intimate belief in the superiority of the unity of issue. 
This end the Government did not, however, expect to 
attain, because, as it declared in the learned report which 
preceded it, it intended to ' ' insure more fully the observ- 
ance of the articles of the law, to reenforce notably the 
banking regulations, and to make up for the lack of 
imity of direction of the institutions, not wishing to 
organize a big institution on the ruins of these minor 
ones as has been done elsewhere, in order not to o£fend 
public interests, customs, and venerable traditions." 

The bill proposed the forming of an association between 
the banks of issue which should serve to establish and 
maintain constant relations among them, and in certain 



106 



The Banks of Issue in Italy 

matters, especially in fixing the discount rate, to give 
a unity of direction to their action. To the association 
was also intrusted, under the surveillance of the Gov- 
ernment, whatever concerned the manufacture of bank 
notes and their distribution among the banks, and like- 
wise the treasury service of the State. 

The bill contained various other wise provisions which 
it is not necessary to mention, because, with the unlucky 
fate that had always pursued the numerous bills for 
Italian banking reform, this one also fell through with 
the downfall of the Rudini Ministry, whose minister of 
the treasury, as we have said, was Signor Luzzatti. 

But, for the reason stated, it seemed useful to mention 
the proposal relating to instituting the association, 
because it represents almost a middle term between the 
unity of issue, the value of which was henceforth recog- 
nized, and plurality, which "venerable customs and tradi- 
tions made it impossible to abolish." 



107 



Chapter VIII. 

THE FAILURE OF THE BANCA ROMANA AND THE CRISIS OF 

1893- 

To the Rudini Ministry succeeded the ministry presided 
over by Signor Giovanni Giohtti, whose minister of agri- 
culture, industry, and commerce was Signor Pietro Lacava, 
and of the treasury was Signor Bernardino Grimaldi, who 
had already held the same office in preceding ministries. 
These were the two ministers to whom, in conformity with 
the law then in force, was entrusted the vigilance over the 
banks of issue and whose concern it was to propose the 
modifications of the banking law. 

But before the ministry could reduce its studies to con- 
crete terms and present its proposals to Parliament, pub- 
lic opinion began to show itself anxious and uneasy about 
the situation of the banks of issue in general, and that 
of the Banca Romana in particular. Having been freed 
from all further check or restraint by the royal decree 
of August I, 1 89 1, which absolved it from the obligation 
of redeeming its notes, the Banca Romana, which was 
already in a disastrous state, went headlong on the road 
to ruin. Its circulation, which amounted to 72,000,000 
lire in 1891, rose to 112,000,000 lire in 1892 and to 137,- 
000,000 lire in January, 1893, going down to 129,000,000 
lire on July 31 of that year. The bank, in order to main- 
tain in circulation the notes which the public rejected, had 
tried to open an office at Milan and branches in other 
cities of upper Italy, but without any success. The notes 
of the Banca Romana, which had not succeeded in pene- 

108 



The Banks of Issue in Italy 

trating to the rest of the Kingdom were flooding the 
Roman Province. 

The situation of that bank gave rise to discussion in 
the ItaHan press, and abroad also a few cries of alarm 
were uttered. It was supposed that Minister Grimaldi, 
who was bound by ties of friendship to the governor of 
the Banca Romana, would propose not to modify the 
banking system, and to make this bank the concessions 
that it was asking for, by increasing its capital and priv- 
ilege of issue. It was then that someone advised Minister 
Grimaldi to reject every proposal of this kind, and to 
take steps, instead, for liquidating the Banca Romana 
and merging it with another bank. The minister was 
warned in a friendly way that if he intended to continue 
the privilege of issue for a bank which was in a disastrous 
financial and moral condition, the whole report of the 
inspection made of the Banca Romana in 1889 would be 
brought to the knowledge of the public. This report 
Minister Miceli had not even communicated to the council 
of ministers, before which he had confined himself to say- 
ing that he had provided for eliminating a few unimpor- 
tant irregularities, as a result of the inspection of the 
bank. 

But Grimaldi, who had meantime determined to pre- 
sent a bill for continuing the existing state of things for 
six years, not only paid no attention to the warning, but 
continued, in sheer bravado, to the point of supporting the 
governor of the Banca Romana in the ministerial council 
and obtaining his nomination for senator. This was the 
spark that started the conflagration. Maffeo Pantaleoni, 
the illustrious economist who is an honor to Italy, and 



109 



National Monetary C o mmis s io 



n 



who had sent to Minister Grimaldi, by a common friend, 
the warning mentioned above, could no longer restrain 
himself in the face of what he considered a challenge. 
Being in possession of a copy of the report on the inspec- 
tion of the Banca Romana, he selected two deputies 
of opposing parties in the Chamber, Signor Colajanni 
from the Left and Signor Gavazzi from the Right, and, 
advising them of the very damaging facts charged against 
the Banca Romana, persuaded them to carry the ques- 
tion to the Chamber; this duty, in the interests of pub- 
lic credit and morality, they accepted willingly. The 
impression produced in the Chamber by the revelations 
of the two deputies was enormous; it was a distressing 
impression because of its moral seriousness and alarming 
because of the revelation of a most disastrous state of 
things, which would cause serious injury to Italian 
credit. 

Signor Giolitti, president of the ministerial council, who 
in the most stormy moments of his long political career 
has fortunately been assisted and supported by a calm 
and well-balanced mind, did not wish in the midst of the 
furious outburst of political passions excited by the revela- 
tion of the sad state of the Banca Romana, to grant the 
proposal of nominating a parliamentary committee of in- 
quiry, and advised instead proceeding first of all and im- 
mediately to the nomination of an administrative com- 
mittee for the purpose of requiring an inspection of all the 
banks of issue, in order to find out their condition. This did 
not succeed, however, in quieting the excitement; because 
even if the announcement of the nomination of that com- 
mittee was at once sufficient to satisfy the legitimate 



no 



The Banks of Issue in Italy 

desire for enlightenment of all the men who were work- 
ing quietly for the public good, it was not enough for 
the politicians, who had suddenly scented, in the sad 
rottenness of the Banca Romana, a most excellent excuse 
for giving free play to the cannibal instinct that distin- 
guishes them from the rest of the human race. How- 
ever that may be, it was quite impossible to prevent 
the opposition from choosing the propitious occasion of 
the very grievous disorder that reigned in Parliament to 
try to bring about the downfall of the ministry. 

Without entering now into the political side of the situa- 
tion, it should be stated that the ministry, abandoning 
the scheme for prolonging the existing state of things for 
six years, suddenly set to work energetically, as the grav- 
ity and urgency of the situation demanded, to provide for 
bestowing better regulations upon the banking system; 
for this there was no need to await the final result of the 
inspection of the institutions of issue. What was already 
known was sufficient to give a clear, if not complete, idea 
of the situation of the banks and the currency; in the 
gravity of this were seen reflected all the effects of the 
errors committed, and principally of that greatest error 
of having allowed to subsist for so many years a hybrid 
system of banking plurality in a country which, by its 
peculiar conditions, needed more than any other the 
valuable support and the valid, efficacious working of a 
single strong and respected institution of issue. 

The plurality of banks had excited rivalry between the 
institutions, and, in the midst of the struggle, they had 
lost the sense of prudence and measure; instead of being 
the supreme regulators of the circulation and credit, they 

39781°— II 8 III 



National Monetary Commission 

had become facile distributors of bank notes, encouraging 
all sorts of irregular and immoderate undertakings. The 
abuse of credit resulting from the conduct of the 
Italian banks of issue had in fact promoted many un- 
dertakings of a speculative nature, without foundations, 
and sometimes without honesty; it had piled up an edi- 
fice, which, superficially considered, might give the illusion 
of solidity and prosperity, but which was doomed instead 
to fall at the first touch, at the first breath of wind. The 
bank note considered as capital had been devoted to all 
kinds of uses, even those least adapted to its nature and 
involving the greatest risk. 

And yet, if we consider that no undertaking succeeds, 
especially in our own time, unless it is moved and ani- 
mated by the violent pufiing of speculation; if we con- 
sider that even in countries more solidly and longer 
organized, and more seasoned to economic struggles, the 
same thing has happened that happened in Italy, it would 
appear that, although deploring the moral disorders and 
the great waste of economic energy, some sort of expla- 
nation ought to be found, which, if it does not justify 
the work of all those who, from top to bottom, were the 
cause of grave and lengthy banking crises, may at least 
lessen their responsibility (leaving aside, of course, those 
who were dishonest) ; for while the course pursued by these 
men resulted in harm on the one hand, on the other hand 
something good remains. There remains the building 
renovation of the capital of the Kingdom; there remain 
the magnificent works of the sanitation of Naples ; there 
remains the network of railroads, and the whole mass 
of public works completed in a quarter of a century. 



112 



The Banks of Issue in Italy 

And there remains above all a notable inheritance of 
experience which offers sufficient guaranty that Italy 
will proceed from now on in the right path in all that 
concerns the government regulation of banks of issue 
and paper currency. 

The situation of the banks had also made plain the 
disadvantages resulting from the intervention of the 
Government and politics in general in banking affairs, 
even if this interv^ention might seem justified by praise- 
worthy intentions and the desire for the public good. 

In this regard bitter were the criticisms directed against 
the men in the Government who had interfered in 
banking matters and against the administrations of 
banks which had not resisted their jiressure and had 
consented to give subsidies, useless for the building 
industry and injurious to the banks. The same thing 
happened now that had happened at the time of the 
abolition of forced currency. All those who in Parlia- 
ment and the press had not only approved the subsidies, 
but insistently demanded them, now became the most 
violent accusers of the Government and the banks. 

Nor was this change of opinion confined to those who 
had neither discernment, ability, nor learning to ex- 
press an intelligent opinion on the question, since it was 
evident also in men who because of their education 
and social and political position were rightly considered 
capable of expressing thoughtful and weighty opinions. 
An influential member of Parliament at the time of the 
subsidizing of the building industry wrote: "The inter- 
vention of the Banca Nazionale was not only legiti- 
mate and praiseworthy, but right. This is the true 



113 



National Monetary Commission 

function of the great institutions of issue — to collect 
and concentrate their own resources in order to be able 
to support credit in difficult moments." He then 
attacked bitterly the basis of the banking project of 
the Government, because he saw in it the "continuation 
of the baneful system of banking subsidies, which, begin- 
ning with the Esquiline undertaking and followed by 
the Banca Tiberina, was the cause of Italy's greatest 
calamities." 

Very rightly the general director of the Banca Na- 
zionale in the report to the shareholders for the year 
1893, t^^ l^st year of the existence of the bank, could 
assert in summing up the vicissitudes of the institution: 
" It has often been said that the bank should have looked 
on with indifference at the disasters that were piling 
up around it, but I have the right to record that these 
tardy reproofs came to us principally from the very 
people who had most loudly requested or demanded 
the aid and help of the bank." 

Another severe lesson coming from the discovery of 
the conditions of the Italian banks was the admonition 
to consider that the first and strongest guaranty of bank 
notes in circulation is metallic money. 



114 



Chapter IX. 

EXAMINATION OF THE BANKING ACT OF AUGUST lO, 1 893. 

Given the three points stated above — that is, the disad- 
vantages of the pluraHty of banks of issue, the interven- 
tion of the Government and pohtics in banking affairs, 
and the necessity of large metalhc reserves as a guar- 
anty for paper currency — it would seem that the course 
to be followed was clearly indicated by the examination 
of the situation and the causes that had created it. The 
logical solution of the banking problem, unsolved for 
some twenty years, which was indicated and almost 
demanded by experience and the situation, seemed to 
consist necessarily in the organization of a single great 
bank of issue, protected by precise legal enactment from 
all political influence and provided with a large me- 
tallic reserve for the greater guaranty of the notes in 
circulation. 

With regard to the first point, the solution was for- 
warded by an agreement promptly arranged between the 
Banca Nazionale nel Regno and the two Tuscan banks. 
By this, leaving out the Banca Romana, the banks of 
issue, organized under the form of a joint stock company, 
were reduced from four to one. There remained the ar- 
ranging for a fusion of the Bank of Naples and that of 
Sicily, or for their transformation into local institutions of 
agricultural or land credit, of which southern Italy was in 
great need ; but no attempt of this kind was possible. This 
is certainly a point in the history of Italian banking that 
will doubtless seem inexplicable to one who examines it 

115 



National Monetary Commission 

at a distance in time, in and by itself, independently of 
the surroundings and the conditions of the moment. 

As we have seen from the brief historic note on the 
origins of the two banks of Naples and Sicily, they were 
considered institutions of southern Italy, for which the 
population of the south cherished the kind of affection 
that is inspired by national glory. To make an attack 
upon the integrity of these two banks was to 
offend the local sentiment of that population and like- 
wise arouse against the ministry the violent opposition 
of the Neapolitan and Sicilian deputies, united and firm 
in demanding that the two banks be preserved with 
absolute autonomy and complete independence. Among 
the few who were an exception to the rule we should 
record, by way of praise, Deputy Saporito, a Sicilian, 
who in a speech to the electors had the courage to pro- 
claim the necessity of creating in Italy a single great 
bank of issue. 

If we consider what were then the surrounding par- 
liamentary conditions, agitated by the raging of violent 
passions, and what must have been in consequence the 
position of the ministry, it will be easy to understand 
how the ministry could not even distantly hope to be able 
to win the great battle in favor of a single bank, since it 
would have been inexorably overthrown if it had even 
expressed such an intention. 

The Government, therefore, was obliged to limit itself 
to proposing the ratification of the fusion of the three 
banks, the Banca Nazionale nel Regno, the Banca Na- 
zionale Toscana, and the Banca Toscana di Credito, and 
the creation of the Bank of Italy; to continue the privi- 



ii6 



The Banks of Issue in Italy 

lege of issue for the banks of Naples and Sicily and erect 
on this foundation the new legislative structure on the 
currency. 

Before proceeding to the examination of the articles 
of the new law, we should state that very violent opposi- 
tion was raised against the plan of the Government, in 
so far as it tended to keep in operation the existing insti- 
tutions, some merged, others autonomous. Deputy Sid- 
ney Sonnino, one of the most cultivated and influential 
members of the Italian Parliament, now president of 
the ministerial council, published a note in which, after 
making a careful examination of the conditions of the three 
banks which were to constitute the Bank of Italy, he 
showed that this institution could not be organized on a 
successful basis, and in concluding his study expressed the 
opinion that the better plan would be to liquidate the 
six banks of issue and create out of them a single entirely 
new bank. Although the opinion of Signor Sonnino 
on the situation, and especially on the conditions in 
which the projected Bank of Italy would be placed, was 
considered exceedingly gloomy, the facts were destined 
to show that he had been, instead, too optimistic. In- 
deed, whereas he had calculated that the Bank of Italy, 
provided it did not suffer other losses, would not be able 
to give the shareholders a dividend of more than 4.50 
per cent on the paid-up capital, the dividend was 15 lire 
for the first year of 1894, 17 lire in 1895, and in various 
succeeding years, until 1905, 18 lire, equal to about 2% 
per cent. This is sufficient proof that the true situation 
of the Italian banks of issue had not yet been grasped 
in all its gravity, even by the keenest inquirers. How- 



117 



National Monetary Commission 

ever, the calculation made by Signer Sonnino made a 
great impression because it signified that the shares of the 
Banca Nazionale, at i,ooo lire nominally, with 750 lire 
paid up, which had been quoted at about 1,285 lire, 
would have to decline to about 1,000 lire. Even this 
calculation was extravagantly optimistic, since the shares 
of the new Bank of Italy from a nominal value of i ,000 
lire with 700 lire paid up, declined in December, 1894, to 
a minimum quotation of 750 lire. 

Two very distinct programmes meanwhile were under 
discussion. First, the plan supported by Signor Sonnino, 
in which few others acquiesced, consisting as we have 
seen, in the liquidation of all the existing banks and the 
building from the foundations of a new banking regime 
with a unified system; second, the plan to which adhered 
both the partisans of a unified system and the partisans 
of a system of plurality, which took definite shape in the 
preservation of the three banks, subjected to a rigid dis- 
cipline which would make possible the gradual liquidation 
of the operations not in liquid form or otherwise not suit- 
able for banks authorized to issue notes. 

If the proscribed programme of Signor Sonnino did 
not, with few exceptions, have the support of the par- 
tisans of unity, it was because it seemed extremely dan- 
gerous to decree the liquidation of the six banks of issue 
during the very serious crisis from which Italy was suffer- 
ing. It seemed to the majority that the better plan would 
be to proceed cautiously and by degrees, beginning by 
restoring a little order to the great banking chaos, and by 
providing, through rigid and severe rules, to prepare the 
way for the gradual reform of the situation, and prevent 



118 



The Banks of Issue in Italy 

the repetition of past errors. Besides, the programme of 
Signor Sonnino could not in any case have been approved, 
because of the very decided opposition of the southern 
deputies who, for the reasons stated, wished the two 
banks to be continued. 

It was for this reason that in spite of the Hvely opposi- 
tion manifested in the long and not always calm discussion, 
the president of the ministerial council, Signor Giolitti, 
gave proof of extraordinary energy and great competency, 
and succeeded in getting the new banking law passed. 
This law at the very difficult moment in which it 
was discussed and ratified, because of the violent dissen- 
sion that raged in the Chamber, and because of the 
abnormal conditions of the banks, could neither be made 
perfect nor final. 

It was necessarily a transitional law, of a kind to make 
possible the understanding of the programme for bringing 
about the gradual reform of the currency and the banks 
of issue, a plan which had been judged more practically 
attainable. 

The new law, promulgated under the date of August lo, 
1893, authorized the fusion of the Banca Nazionale nel 
Regno with the Banca Nazionale Toscana and the Banca 
Toscana di Credito, and the creation of a new bank which 
assumed the title of the '* Bank of Italy." The capital was 
placed at the sum of 300,000,000 lire, divided into 300,000 
registered shares of 1,000 lire each, with payment of 700 
lire. The paid-up capital was thus raised from 1 76,000,000 
to 210,000,000, and the shares were distributed among the 
shareholders of the three banks as follows: To the share- 
holders of the Banca Nazionale 214,289 shares in exchange 



119 



National Monetary Commission 

for the old ones; to the same shareholders, at option, 
48,718 shares; to the shareholders of the Banca Nazionale 
Toscana 30,000 shares; to the shareholders of the Banca 
Toscana di Credito 8,000 shares. 

The maximum amount of notes that the Bank of 
Italy and the two banks of Naples and Sicily could 
keep in circulation was fixed, for four years, at the 
sum of 1,097,000,000 lire, divided as follows: 

Lire. 

Bank of Italy 800, 000, 000 

Bank of Naples 242, 000, 000 

Bank of Sicily 55, 000, 000 

After four years the circulation was to be gradually 
diminished by a graded yearly quota, so that when 
fourteen years had elapsed after the promulgation of the 
law it should be reduced to the following proportions: 

Lire. 

Bank of Italy 630, 000, 000 

Bank of Naples 190, 000, 000 

Bank of Sicily 44, 000, 000 

The total circulation thus amounted to 864,000,000 lire, 
corresponding, for the Bank of Italy exactly, and for the 
two banks of Naples and Sicily approximately, to three 
times the paid-up capital of the one and the free capital 
possessed by the others. 

The reduction of the maximum of circulation was 
justified by the gradual liquidation of operations non- 
liquid in form or not allowed under the new law, a liqui- 
dation which would automatically reduce the mass of 
bank notes in circulation. The banks which, at the end 
of fourteen years, should not possess a capital correspond- 
ing to a third part of the circulation allowed them would 
be obHged within three months to reduce this circulation 



120 



The Banks of Issue in Italy 

by the amount in excess of three times their paid up 
or free capital. The circulation taken away from one 
bank was to be granted to such others as should possess 
or pay up the capital corresponding to and available for 
the triple issue. The auditing of the paid up or free 
capital was intrusted to a commission composed of seven 
members, two to be chosen from the Senate, two from the 
Chamber, and three to be nominated by royal decree. 

The above limits did not include bank notes that the 
banks could issue, without restriction as to amount, pro- 
vided they were entirely secured by legal metallic money 
or by gold bars deposited in the coffers, and the notes 
issued for ordinary or extraordinary loans to the State 
treasury. 

The holders of notes had the right to demand their 
redemption in metallic money in the cities of Rome, 
Bari, Bologna, Cagliari, Catania, Florence, Genoa, Leg- 
horn, Messina, Naples, Palermo, Turin, Verona, and 
Venice. This article, which was already included in the 
preceding laws, could not, however, be enforced, since 
enforcing it would have led to the exhaustion and expor- 
tation of the metallic reserves of the banks of issue, because 
of the dearness of exchange. 

The new law confirmed for fwo: years the legal currency 
of the notes of the three banks in the provinces in which 
they had their own establishments and representatives. 
It is to be stated that the legal currency was destined 
to be successively confirmed from year to year and is 
still in force. During the legal currency the discount 
rate was to be the same for the three banks and could 
not be changed without the permission of the Government. 



121 



National M on et ar y Commission 

They could, however, discount at a rate i per cent below 
the official rate paper presented by people's banks and 
institutions of discount and agricultural credit, organized 
to serve as intermediaries between the small trade and the 
banks of issue, and for the discount of warrants of general 
warehousing and consignments free of taxation (franchi de- 
positi) . The discount at special rates was to be limited — 

Lire. 

For the Bank of Italy 70, 000, 000 

For the Bank of Naples 21, 000, 000 

For the Bank of Sicily 4, 500, 000 

Each bank was obliged to accept through the operations 
of any kind the notes of the other banks in the cities in 
which they had legal currency. 

The rules for the mutual redemption of notes among 
the banks were to be established by royal decree and 
presented to Parliament within the year 1893, to be con- 
verted into a law. 

The metallic reserve was to be increased within a year 
from 33 per cent to 40 per cent of the notes in circula- 
tion, 33 per cent of which was to be composed of Italian 
specie, of foreign coin admitted to legal currency in the 
Kingdom, and in bullion in the ratio of at least three- 
quarters in gold and one-quarter partly in silver coin; 
and as for the remaining 7 per cent, it could also be com- 
posed of foreign bills of exchange on firms of the first 
order, recognized as such by the Minister of the treasury. 
A like reserve of 40 per cent was established as a guar- 
anty of the debt of the banks represented by promissory 
notes, checks, bank transfers, and other paper payable 
at sight, and without exception all paper payable to 
bearer. 



Z22 



The Banks of Issue in Italy 

The article that authorized the banks to include in the 
metallic reserve foreign bills of exchange was successively 
amplified as for the quantity and character of the obHga- 
tions so as to permit adding thereto treasury bonds of 
foreign states with a normal metallic circulation, and also 
certificates of deposits of money with foreign banks and 
bankers w^ho were correspondents of the Italian treasury. 
The above provision was framed for two different reasons : 
The one, of utility to the banks of issue, a part of whose 
reserve it rendered fruitful, with the advantage of the 
reconstruction of their free capital; the other, of mone- 
tary utility, since it allowed the banks to have a part 
of their funds in foreign countries, which might serve as a 
powerful protection in case of monetary disturbances and 
high rates of exchange. From this point of view, Italy 
introduced into its banking legislation a provision already 
tried to advantage in other countries, such as Germany, 
Austria- Hungary, Russia, Switzerland, Holland, Belgium, 
and Spain. 

By article 9 of the law it was stipulated that the manu- 
facture of bank notes should take place, in conformity 
with special regulations, under the cooperation of the 
State and the banks. 

The tax on circulation was fixed at i per cent of the 
average total of bank notes, after deducting the metallic 
reserve. 

The banks would pay, therefore, beside the tax of i per 
cent, an extraordinary tax corresponding to double the 
discount rate on the excess of circulation and the deficit 
of metallic reserve. 



123 



National Monetary Commission 

Article 12 was particularly interesting; in this were in- 
dicated the operations that the banks could carry on, that 
is, discount of bills of exchange having not more than four 
months to run and bearing the signatures of two or more 
persons known to be solvent ; of treasury bonds ; of war- 
rants issued by societies of general warehousing and con- 
signments free of taxation (franchi depositi) ; of coupons 
of securities admitted in loan operations. Loans, for not 
more than six months, on government securities or those 
guaranteed by the State; on mortgage certificates issued 
by realty credit institutions; on gold bonds issued or 
guaranteed by foreign states; on gold and silver coin, na- 
tional or foreign, at legal currency, and gold bars; on silk 
raw and in organzine or woven, and on silver bars esti- 
mated at not more than two-thirds of their value ; on cer- 
tificates of warehousing and consignments free of taxation 
(franchi depositi) ; on orders in merchandise or sulphur, 
not over two-thirds of the value; on certificates of con- 
signments of spirits and cognac, placed in the warehouses 
legally established, for not more than half the value. 

Cash purchases and sales on account of the banks 
themselves of foreign drafts and checks and foreign bills 
of exchange of not more than three months' currency, 
payable in gold, bearing two or more signatures known to 
be solvent. These operations could not, during the legal 
currency, without the permission of the minister of the 
treasury, exceed the limit necessary for refurnishing the 
metallic reserve or satisfying the needs of the treasury. 
The banks were to liquidate in two years securities, cer- 
tificates, and goods held in payment of or as guaranty for 
their credit, and within three years the mortgages or real 
estate obtained for overdue credits. 



124 



The Banks of Issue in Italy 

The banks could hold a quota of Italian government 
stock for a value not exceeding : 

Lire. 

For the Bank of Italy 70, 000, 000 

For the Bank of Naples 21, 000, 000 

For the Bank of Sicily 4, 000, 000 

The banks of issue could receive deposits on interest- 
bearing accounts current; in case, however, the total of 
accounts current exceeded: 

Lire. 

For the Bank of Italy 130, 000, 000 

For the Bank of Naples 40, 000, 000 

For the Bank of Sicily 12, 000, 000 

the bank was obliged to reduce the circulation by three- 
quarters of the excess. The interest on accounts current 
could not exceed half the discount rate during the first 
three years and one-third in the following years. 

Realty credit operations were forbidden. The banks 
could continue winding up the operations which had been 
proposed until July i, 1893. All uncovered operations in 
accounts current were forbidden. 

The Bank of Naples was authorized to continue its 
pawn operations. The banks were allowed to assume the 
office of provincial receivers of the direct taxes. 

The Bank of Italy, the Bank of Naples, and the Bank 
of Sicily were obliged to liquidate in ten years, at the rate 
of one-fifth every two years, operations other than those 
permitted by the new law. Obligations settled with the 
statutory reserve could be considered liquidated . In case of 
not completing in each two years the liquidation of a fifth 
of the operations, the Bank of Italy would have to ask the 
stockholders, within the limits of the nominal capital, for 
the payment of the sum needed to complete the obligatory 
liquidation. The Banks of Naples and of Sicily were to 



125 



National Monetary Commission 

devote all profits to the completion of the obligatory 
liquidation. For banks which had not conformed to the 
above provisions of the law the privilege of issuing bank 
notes would be suspended for a sum four times the 
amount needed to complete the obligatory liquidation. 
The banks which had carried on operations forbidden by 
the law would be liable for a tax equal to three times the 
discount rate, calculated on the whole duration of the 
operations. 

To prevent the banks from being induced by their 
own initiative or by pressure from the Government 
to carry on operations of special character having in 
their form only the appearance of legality, the general 
directors and the councils of the three banks were not 
allowed to conclude discount operations, and it was stipu_ 
lated that no bill of exchange should be admitted to 
discount without the sanction of the discount commis- 
sion of the establishment or branch to which it had been 
tendered. At the end of each fiscal year the amount 
of the bills overdue and unpaid was to be charged to 
loss; that of the bills subsequently recovered was to be 
added to the profits of the year in which the bills were 
paid. 

The law granted the reduction of three-quarters of the 
registration fee of deeds of sale or purchase of real estate, 
and releases of credits made for the liquidation of opera- 
tions not admitted by the said law. 

The law authorized, moreover, the banks of issue to 
intrust, in whole or in part, the liquidation of operations 
not in liquid form to an institution which should be 
created with a capital of no less than 40,000,000 lire, to 



126 



The Banks of Issue in Italy 

which the Government could make special concessions. 
But the banks did not need to avail themselves of this 
faculty. 

There followed in the law the stipulations concerning 
the organization of the government inspection of the 
banks and severe penalties for fraudulent infractions 
of the law; next came provisions as to the liquidation 
of the Banca Romana, which had been assumed by 
the State, and by it delegated to the Bank of Italy, which 
was to pay on account of the liquidation 2,000,000 lire 
a year during ten years. 

An article of the law stipulated that members of Par- 
liament could not fill any office, with or without remu- 
neration, in the banks of issue. 

As we have seen, the new law corresponded in its 
general outline to the programme that had been chosen 
as the one that appeared best adapted to the conditions 
of the moment, consisting in assuring the gradual liqui- 
dation of the burdensome inheritance left by the stormy 
vicissitudes of the past to the Italian banks, and in provid- 
ing at the same time for surrounding the further action 
of the said banks with timely precautions, subjecting 
them to salutary checks rendered efficacious by severe 
penalties so as to avoid new mistakes and disorders. 

With the exception of a few details of small impor- 
tance arising from the different character of the three 
banks, the law subjected them all to the same regulations, 
and the severe regulation of the government supervision 
insured that the action of the three banks in observing 
the said law should be uniform, as if there were in fact 
one single bank of issue. 

• 

39781°— II 9 127 



National Monetary Commission 

And while in this way were obviated the dangers of the 
pluraHty of banks, of which Italy had made a very dismal 
trial, or at least the disadvantages of the system were 
diminished, provision was made by increasing the 
metallic reserve for removing the other cause, already 
stated, of the inferiority of the Italian paper currency. 
As for the meddling of politics in the management of 
the banks of issue, it was supposed to be provided for by 
the law stipulating that senators and deputies could not 
hold office in the banks. 

This provision, which was rightly said to savor of Jaco- 
binical distrust, was not included in the bill presented by 
the Government and was added during the discussion in 
the Chamber. It was not, however, in any way justified, 
since it had not appeared, and did not appear later from 
the parliamentary inquiry that there had been in Parlia- 
ment members of the council of banks of issue, who, abus- 
ing their function as senators and deputies, had harmed 
the banks or had in any way whatsoever in their double 
capacity as politicians and as administrators of the 
banks of issue committed dishonest acts such as would 
justify the incompatibility established. The effect of that 
provision of the law was, meanwhile, to deprive the banks 
of men of great authority and unquestioned uprightness, 
such as Senator Tittoni, afterwards foreign minister; 
Senators Balestra, Lancia di Brolo, Ridolfi, Chiara- 
monte Bordonaro, and Deputy Giuseppe Pavoncelli, 
later minister of public works. Besides, this law forbade 
and still forbids the King to confer the dignity of senator 
on men who in the administration of the banks of issue 
render themselves worthy of public honor. 



128 



Chapter X. 

THE PARLIAMENTARY COMMITTEE OF INQUIRY — AGGRAVA- 
TION OF THE FINANCIAL AND ECONOMIC SITUATION — 
FINANCIAL AND BANKING PROVISIONS OF MINISTER 
SONNINO AND THEIR EFFECT. 

The law of 1893, although not perfectly successful, neces- 
sarily, perhaps, because of the condition of things and the 
general anxiety, was none the less of a kind to quiet uneasi- 
ness and to cause a revival of confidence in a gradual 
amelioration of the circulation and the banks, but it did 
not succeed in accomplishing the desired result. Political 
passions, instead of calming down, grew more inflamed, 
while at the same time the results of the inspection of 
banks showed that their situation was much more 
serious than had been supposed in the beginning. The 
Government now recognized the necessity of allowing the 
nomination of a parliamentary committee of inquiry, 
charged with ascertaining any incorrect relations of poli- 
ticians and the public departments with the banks of 
issue. Although the committee of inquiry was composed 
of honorable and authoritative men, it did not succeed 
in entirely escaping the influences of the surrounding 
parliamentary agitation and was not always conducted 
with calm impartiality. Thus, when it ascertained the 
loan mentioned above of 8,000,000 lire made by the Banca 
Nazionale to the Banca Romana, the committee bitterly 
reproached the Banca Nazionale, declaring it did not seem 
credible that it should have been ignorant of the condi- 



129 



National Monetary Commission 

tions of the Banca Romana, as if insinuating that, although 
knowing them, it had consented to help hide them. To 
this insinuation, which had suggested to Deputy Cavallotti 
^aying before the government the before-mentioned inquiry, 
the general director of the Banca Nazionale replied scorn- 
fully and haughtily in a letter published in the newspapers. 

The presentation to Parliament of the report of the 
committee of inquiry unloosed a furious tempest, in the 
presence of which the ministry resigned. It may well 
be suspected that the ministry was violently attacked in 
some quarters also for having dared to probe to the 
bottom the affairs of the Banca Romana, to the point 
of allowing the legal authorities to proceed to the arrest 
of the governor and the head cashier of the bank and 
other supposed accomplices. Even if the attacks against 
the president of the council were apparently justified 
by an unfriendly judgment expressed in his regard by 
the committee of inquiry, in reality the united oppo- 
sition which could not in good faith ignore his personal 
integrity, had found itself agreed upon the aim of ruining 
the ministry. And that was neither the first nor the last 
time in which a ministerial crisis was produced in Italy as 
the result of an event for which the ministry was not at all 
responsible. 

The inordinate clamor which political passion had 
raised over the fall of the Banca Romana and the excessive 
exaggeration of accusations and charges seemed to justify 
the suspicion that all the political, economical, and banking 
life of Italy was corrupt. Naturally all this could not fail 
to produce harmful effects on the public credit. And in 
truth the period between the middle of 1893 and the middle 



130 



The Banks of Issue in Italy 

of 1894 may be considered in every respect one of the 
darkest and most distressing through which new Italy has 
passed. Government rentes went down on the Paris 
market from a maximum quotation of 93.50 to a minimum 
of 72, due hkewise to the distinct resumption of hostihties 
by the French market as a result of the painful conflict 
started at Aigues Mortes between Italian and French 
workmen, which helped to aggravate the situation in Italy. 
As a necessary consequence of the fall in rentes, exchange 
went up from the rate of 102.30, the maximum point 
touched in 1892, to the maximum of 115.95, a rate never 
reached before that time. 

But whether as a coincidence or reflex of the banking 
crisis, not only did the conditions of credit in general and 
national economy appear grave, but also those of the 
public finances. The budget which had closed with a 
surplus of more than 9,000,000 lire for the financial year 
1 892-1 893, now showed a great deficit, without taking 
into account the increase of debts incurred under various 
forms and the expedients which were resorted to in 
order to provide for the ever increasing needs of the 
treasiiry. 

The Giolitti Ministry was succeeded by a new Crispi 
Ministry, in which Signor Sidney Sonnino accepted 
the treasury portfolio. His first effort was devoted to 
making an accurate, profound analysis of the actual con- 
ditions of finance in relation not only to the account of 
revenues and ordinary expenditures, but also to the 
situation of the treasury and the amounts extraordinary 
for building railroads and many other needs of the State. 
The result of his conscientious study was the discovery of 



131 



National Monetary Commission 

a situation which the minister did not hesitate to declare 
very serious, which he summed up: In a deficit of 
155,000,000 in the ordinary expenditures; in a treasury 
debt of 565,000,000, which needed systematizing; in the 
abnormal conditions of circulation; in the uneasiness 
that, as a result of an economic derangement felt by every- 
one, was spreading over the country. And, making a 
brief analysis of the causes that had led Italy into the sad 
condition ascertained, he did not hesitate to declare that 
these causes must be found in the waste made of money 
amounting to millions and billions, borrowed without due 
forethought and used in unproductive or unnecessary ex- 
penditures. He bitterly reproved Parliament for delud- 
ing itself and the public during fifteen years as to the 
real condition of the public finances, and, in conclusion, 
made a lively appeal for energetic and virile action to 
save the country from the financial and economic ruin 
that threatened it. 

The stubborn optimists tried to reprove Signor Sonnino 
for depicting the situation in such very dark colors; but 
they did not succeed in lessening the great impression 
produced by the courageous exposal made by the min- 
ister of the actual conditions of the country and finance. 
Signor Sonnino was, therefore, as will be seen later, as 
energetic in the cure of the trouble and fortunate in its 
issue as he was merciless in its diagnosis. 

But even before he had arranged in concrete form the 
provisions aiming at the systematizing of the treasury and 
restoring finance, he was obliged to intervene speedily 
in order to avoid the aggravation of the monetary and 
economic situation of the country. 



132 



The Banks of Issue in Italy 

The considerable decline of the Italian rentes in Paris 
provoked a grave crisis on the Italian stock exchanges, a 
crisis that overwhelmed the two biggest credit insti- 
tutions then existing, the Credito Mobiliare Italiano and 
the Banca Generale, one with a paid-up capital of 
60,000,000 lire, the other with a paid-up capital of 
30,000,000 lire. The failure of these institutions was the 
chief cause of the aggravation of the situation. Securities 
continued to decline sharply in a way never before wit- 
nessed, and the panic seized even depositors, who crowded 
to the doors of the banks and savings institutions in order 
to obtain immediate payment of deposits. The situa- 
tion then appeared terrifying and threatening. The 
minister of the treasury, Signor Sonnino, and the min- 
ister of agriculture, industry, and commerce, Signor 
Boselli, to save the country from the most serious con- 
sequences, were ready to provide, through royal decree 
of the date of January 23, 1894, ^o^ placing the banks of 
issue in a condition to come to the aid of the very grave 
situation. The royal decree authorized the banks to 
issue notes beyond the normal limits up to the amount: 

Lire. 

For the Bank of Italy 90, 000, 000 

For the Bank of Naples 28, 000, 000 

For the Bank of Sicily 7, 000, 000 

on condition of the payment of a tax equal to two-thirds 
of the discount rate, instead of double the discount rate as 
stipulated in the law of August lo, 1893. The notes were 
to have the required metallic reserve. The same royal 
decree suspended the provision of the law by which the 
banks were obliged to reduce the circulation by three- 
quarters of the amount of the deposits in accounts current, 

133 



National M on e t ar y Commission 

in addition to the sums indicated. So, twenty-three days 
after that banking law had gone into force, it was necessary 
to provide for modifying it temporarily. The effect of the 
royal decree was salutary, because it succeeded in stopping 
the run of depositors on the banks and savings institu- 
tions by the influence of that phenomenon of a psycho- 
logical nature which is always evident in similar cases. 

Viewed as a whole, the very grave banking crisis that 
Italy suffered from at that time may be considered as the 
inevitable result of the failure to keep in mind the rules 
that must always guide the management of the banks of 
issue and the institutions of credit. The banks of issue, 
for reasons already stated, were impelled and forced to 
disregard the principles that must govern the activity 
of banks authorized to issue paper money; the institu- 
tions of credit, because of a mistaken estimate of the 
economic conditions of the country, forgot that institu- 
tions that operate in large part with the money of depos- 
itors must use the greatest care to avoid tying up the 
capital, which may be, as it was then, as it had been 
before in other countries, as it will doubtless be in the 
future, a cause of economic crises and of inevitable ruin 
for these institutions. In the face of the painful results 
of experience discussions then arose in Italy that were to 
arise in 1907 in Germany and Italy with regard to the 
perils that may be incurred by institutions of credit which 
employ too large a part of the depositors' money in direct 
participation in industrial undertakings and in affairs of 
a speculative nature. 

The Banca Generale and the Credito Mobiliare went 
into a forced liquidation, the result of which showed that 



134 



The Banks of Issue in Italy 

the first would have been strong enough to Hve on a basis 
of its own if it had not been overturned by the fury of 
the blast that made it impossible to examine its situation 
calmly and shut out the aid that could have been afforded 
by suitable and relatively limited means. 

The Government then showed the desire to know with 
greater exactness the conditions of the banks of issue in 
order to see whether it was possible for them to conform 
to the stipulations of the law of 1893, and a ministerial 
decree of February 15 arranged for a complete new in- 
spection of these banks in order to ascertain the solidity 
of their financial situation and the amount of operations 
not in conformity with the law, likewise the situation of 
the cash and circulation. 

The work of the ministry in the matter of finance and 
circulation entered then upon a period of truly feverish 
activity. By royal decree of February 21, 1894, con- 
verted into a law July 22, 1894, the treasury was author- 
ized to increase the circulation of state notes to 600,000,000 
lire, comprising in that sum 200,000,000 lire which the 
treasury was to furnish the banks of issue in exchange 
for the same amount in gold that they had been forced 
to set aside at the disposal of the treasinry, to be dis- 
tributed as follows: 

Lire. 

Bank of Italy 145, 000, 000 

Bank of Naples. 45, 000, 000 

Bank of Sicily 10, 000, 000 

The state notes were as a matter of fact declared at 
forced currency, since their exchange into metallic money 
was suspended and there had passed into full possession 
and disposal of the treasury certificates of public debt for 



135 



National Monetary Commission 

the amount of 367,750,700 lire, which were deposited as 
a guaranty for the said notes. In such a way the state 
notes which had been thus created originally in 1881 for 
the sum of 340,000,000 lire, with a guaranty of 234,000,000 
lire in rentes, and had risen by June 30, 1893, to 367,- 
000,000; these notes which had been intended to be with- 
drawn and cancelled annually by the surplus of the budget 
were increased to 600,000,000 lire and deprived of all 
guaranty. The amount of 600,000,000 in state bank 
notes, authorized by the law of June 22, 1894, was never 
reached, for, including 558,000,000 lire in cash orders of 
I and 2 lire, created by royal decree August 4, 1893, and 
February 21, 1894, and 45,000,000 lire issued for the Bank 
of Naples, as will be shown presently, they reached a 
maximum total of 556,000,000 lire on June 30, 1898, and 
were reduced on June 30, 1899 to 434,500,000 lire, includ- 
ing 23,000,000 lire left over from the 45,000,000 lire issued 
on the account of the Bank of Naples, with a guaranty of 
gold specie to the amount of 176,700,000 lire. 

The existence in circulation of state notes has often 
given rise to discussions in Italy, and it has been proposed 
several times to withdraw these notes. And, indeed, it 
does seem strange that the Government, which has rightly 
been concerned with the absolute necessity of reforming 
the banking currency, not only has never given a thought 
to reforming its own currency, but has, instead, made it 
worse. However, granting that the suppression of state 
notes would be useful to the country from the monetary 
point of view, it should be remembered, nevertheless, 
that most of the state notes issued do not burden the 
country, but are very willingly accepted for their great 

136 



The Banks of Issue in Italy 

convenience in small transactions and are preferred to 
5 -lire silver pieces. 

In fact, a great part of the state notes are sought for by 
Italian emigrants abroad, who prefer them to checks for 
sending small sums of money to Italy. And although in 
actual figures they show an increase from 1881 until to-day, 
yet, considered in relation to the increase of population 
and trade, and in relation to the total amount of the cur- 
rency, they show, instead, a decrease. In 1889 having 
redeemed in specie nearly the whole of the association 
notes debited to the State, there were in circulation 
1,116,000,000 lire in notes of the banks, compared to 
334,000,000 lire state notes of 5, 10, and 25 lire. The pro- 
portion between the state notes and those of the banks 
was about 30 per cent, while at the end of 1908 the state 
notes amounted to 468,000,000 lire and represented 25 per 
cent of the total notes in circulation. Although there 
are in circulation silver coins for i and 2 lire and, in 
smaller proportions, 5-lire pieces, yet the fractional cur- 
rency is shown to be rather deficient, especially in mo- 
ments of greater need, determined by the silk market and 
the harvest of the principal agricultural products. 

It must be understood, in any case, that the forced cur- 
rency of the state notes was a provision of an absolutely 
extraordinary nature, made at a moment when it was 
important to regulate a most difficult and threatening 
situation, in which the conditions of the foreign market 
with respect to Italy and even more those of the home 
market, would not have permitted making an appeal to 
credit. It can not be said, indeed, that Signor Sonnino 
lacked the courage to act with energy, since, after taking 



137 



National Monetary Commission 

exact account of the gravity of the situation, he con- 
sidered all the means fitted to cope with it, not even stop- 
ping at the unpopular ones of increasing the existing taxes, 
and imposing new taxes, and the one, judged dangerous 
to Italian credit, of increasing from 13.20 per cent to 20 
per cent the tax on personal property in government 
rentes. 

This is not the place to examine all the provisions 
proposed by Signor Sonnino and approved by Parlia- 
ment in order to reheve the conditions of the public 
finances and put new life into the depressed economic 
situation of the country; let it sufiice to note here that 
the desired effect was quickly reached, since the budget 
of 1894-95 closed with a surplus of about half a million; 
Italian rentes in spite of the increase of the tax advanced 
on the Paris market to 91, and commercial activity, which 
had suffered a falHng off, began to increase again. 

We must return, however, to the banking provisions 
that Signor Sonnino, in agreement with Minister Boselli, 
proposed at the same time with the financial ones. A 
royal decree, carrying out the law of August 10, 1893, 
provided for regulating the method of the mutual redemp- 
tion of bank notes among the banks of issue, so as to render 
it efficacious. The decree stipulated that the redemption 
should be effected without limitation and that on the 
sums remaining to the debit of a bank, interest should 
be reckoned in favor of the creditor institution. 

The law of July 22, 1894 modified the provisions made 
under pressing necessity in January of the same year, 
relating to the excess of circulation of bank notes over 



138 



The Banks of Issue in Italy 

the normal limits, establishing that the institutions could 
issue, respectively: 

Lire. 

Bank of Italy 45 , 000, 000 

Bank of Naples 14, 000, 000 

Bank of Sicily 3, 500, 000 

on condition of paying a tax equal to two-thirds of the 
discount rate, and could further exceed the circulation 
by a like amount, on condition of paying a tax equal to 
the discount rate. The above-mentioned excess of cir- 
culation, however, was to be guaranteed by the prescribed 
metallic reserve in the ratio of 40 per cent. 

As for the obligation to reduce the circulation by three- 
quarters of the excess of deposits in accounts current 
beyond the sums indicated, it was stipulated that this 
reduction should be limited to one- third. 

The amount of statutory loans that the banks of issue 
were obliged to make the Government v>^as fixed at 
125,000,000 lire, distributed as follows: 

Lire. 

Bank of Italy 90, 000, 000 

Bank of Naples 28, 000, 000 

Bank of Sicily 7, 000, 000 

After settling that import duties were to be paid 

in metallic money, this law stipulated that for 

those not exceeding 200 lire state notes or bank notes 

should be accepted, with the addition of exchange. It 

further established that the banks of issue should provide 

certificates useful for the payment of import duties, by 

receiving a like amount in bank and state notes, without 

limitation as to amount, with the addition of exchange. 

In a special account current the banks were to be debited 

with the sums deposited for the issue of certificates and 



139 



National Monetary Commission 

credited with sums paid abroad on account of the treasury. 
The differences resulting in profit or loss from this service 
were to be evenly divided between the treasury and the 
banks. 

As long as the redemption of state notes in specie re- 
mained suspended, bank notes could be changed into state 
notes or into specie with the addition of exchange. 

By royal decree of October 12, 1894, the government 
supervision of banks of issue, and the liquidation of the 
Banca Romana, undertaken first by both the minister of 
agriculture, industry, and commerce and the minister of 
the treasury, was intrusted exclusively to the latter. 

Having provided by this and other provisions of minor 
note for regulating the various urgent questions concern- 
ing the currency and the treasury. Minister Sonnino made 
the banking law of August 10, 1893, the subject of careful 
study, in relation to the situation of the banks, which 
was henceforth more clearly defined because of the new 
inspection that had been applied to these banks. Opera- 
tions that were not in a liquid form or not allowed by the 
new law were found on February 20, 1894, to amount 
to 638,366,685 lire — that is to say: 

Lire. 

For the Bank of Italy 449, 420, 000 

For the Bank of Naples 169, 613, 316 

For the Bank of Sicily 19, 333, 369 

However, more than half of the banking currency was 
represented by operations of difficult or tardy liquidation, 
or not suitable for banks of issue; operations among 
which noteworthy losses were concealed. Now that he 
was more directly informed of the actual facts, Signer 
Sonnino, minister of the treasury, who had returned 



140 



The Banks of Issue in Italy 

to the ideas expressed at the moment of the failure of 
the Banca Romana, and had even rejected proposals that 
were made to him by foreign capitalists for the creation 
of a new bank of issue, could not neglect giving his atten- 
tion to the conditions revealed in the Bank of Italy, and 
stipulated with it an agreement dated October 30, 1894, 
of which the principal points were as follows: 

The assuming on the part of the Bank of Italy at its 
own entire risk and peril of the liquidation of the Banca 
Romana, relieving the State of whatever losses might 
result beyond the sums to be paid by the Bank of Italy 
at the rate of 2,000,000 lire a year. 

The bank itself engaged to deduct from net earnings 
and to set aside 4,000,000 lire in the year 1894, 5,000,000 
lire in 1895, ^^^ 6,000,000 lire in 1896 and the following 
years, until the end of 1903. These sums were to be 
invested in State securities or securities guaranteed by 
the State, to be used, together with the relative com- 
pound interest, for securing within ten years the liquida- 
tion of operations not realized on or not in conformity to 
the law, and to compensate for losses resulting from the 
liquidation of the Banca Romana over and above the 
annual payment of 2,000,000 lire. 

The agreement, evidently anticipating provisions that 
Minister Sonnino already had in mind, which were as a 
matter of fact afterwards proposed and carried out, stipu- 
lated that if the time fixed at ten years for the liquidation 
of operations not in a liquid form or forbidden by the 
law should be prolonged, and consequently the two-year 
periods extended, the bank should continue for the longer 
time granted the setting aside of 6,000,000 lire of its 



141 



National Monetary Commission 

profits. The Bank of Italy was obliged to continue the 
deduction of profits for the increase of the ordinary reserve 
and could not distribute to shareholders a dividend greater 
than 40 lire, being obliged to deposit in the reserve every- 
thing in excess of this amount. 

The Bank of Italy agreed to ask the stockholders for a 
payment of 100 lire a share and to deduct a correspond- 
ing sum of 30,000,000 lire from the valuation of its own 
capital, which was thus reduced to 270,000,000 lire nomi- 
nal capital, divided into 300,000 shares of 900 lire each, 
nominally, with 700 lire paid up; that is to say, with a 
paid-up capital of 210,000,000 lire. The 30,000,000 lire 
paid by the stockholders and not computed in the increase 
of paid-up capital was destined to cancel a like sum of 
overdue and unpaid operations included in the operations 
of difficult or tardy liquidation. 

The Bank of Italy assumed the treasury service of the 
state in all the provinces of the Kingdom from February 
I, 1895, until December 31, 191 2. It was to receive pay- 
ments of amounts on account of the state and the various 
departments connected with it, and was to exact payments 
in favor of creditors of both. In guaranty for this service 
the bank was to furnish an initial surety of 50,000,000 lire 
in state securities, or securities guaranteed by the state, to 
be increased to 90,000,000 lire within six years. 

The amount of statutory loans to be made by the bank to 
the treasury was increased from 90,000,000 to 100,000,000 
lire. The state left with the bank a permanent cash fund 
of 30,000,000 lire solely for the needs of the ordinary treas- 
ury service, except for the necessary provision for extraor- 
dinary payments. When the cash fund rose to more than 



142 



The Banks of Issue in Italy 

40,000,000 lire, the bank was to pay the state a net inter- 
est of 1.50 per cent; when, on the other hand, it fell 
below 10,000,000 lire, the state was to pay the bank a 
like interest. The cash fund, however, was always to be 
brought up to a total of 30,000,000 lire in the course of 
every ten days, so that on the evening of the loth, the 
20th, and the last day of the month (dates on which the 
bank statements were to be published) the fund should 
amount to 30,000,000 lire. 

In the agreement it was stipulated that during the legal 
currency, and as long as the Bank of Italy carried on the 
treasury service of the state, it could not ask the Bank of 
Naples and the Bank of Sicily for the redemption of their 
notes which had entered its coffers until a like amount of 
the outstanding notes of the bank, at the end of ten days, 
should be in the coffers of the two banks. This stipulation, 
by which was weakened anew the principle of the obliga- 
tion of mutual redemption of notes among the banks, was 
justified by the consideration that in the course of the 
treasury service the Bank of Italy would collect, especially 
in southern Italy, a great quantity of the notes of the two 
banks which they would have difficulty in redeeming. 

On this point it may be objected that the cash trans- 
actions of the treasury being accounted separately from 
those of the bank and being controlled by the offi- 
cers delegated by the treasury, the anticipated incon- 
venience might have been avoided by excluding from 
redemption such notes of the two banks as had entered 
into the bank through treasury operations. These could 
have been spent by the Bank of Italy in the operations 
themselves or in those of the bank, leaving the principle of 
the mutual redemption of notes in full force for the re- 
39781°— II 10 143 



National Monetary Commission 

maining notes. It must be stated, however, that no incon- 
venience has been felt as a resuh of this provision, since 
the relations among the three banks, even in regard to the 
redemption of notes, have been perfectly correct, and their 
circulation has not suffered from the above-mentioned 
stipulation. 

This agreement was approved by royal decree of Decem- 
ber ID, 1894, which was converted into a law August 9, 
1895. Although the agreement laid fresh burdens upon 
the Bank of Italy, such as the liquidation, at its own risk, 
of the Banca Romana and all the expense of the treasury 
service, it produced, nevertheless, a good impression, 
because notwithstanding the difficulties, now well known, 
in which the bank was involved, the Government by 
intrusting to it the treasury service showed that it had the 
greatest confidence in the solidity of its framework, 
whereas the payment by the shareholders of 30,000,000 
lire assigned to cancel losses, and the obligation of the 
annual setting aside of profits facilitated the gradual 
building up of the capital of the bank and the improve- 
ment of its circulation. 

In the law that ratified the agreement between the 
Government and the Bank of Italy other provisions were 
made concerning the banks of issue, among which was the 
increase of the amounts they were permitted to invest in 
rentes: Bank of Italy, from 70,000,000 to 75,000,000 lire; 
Bank of Naples, from 21,000,000 to 30,000,000 lire; Bank 
of Sicily, from 4,000,000 to 8,000,000 lire. 

The amount of deposits in accounts current beyond 
which the circulation was to be reduced, in the ratio of 



144 



The Banks of Issue in Italy 

one-third, was increased: For the Bank of Naples, from 
40,000,000 to 50,000,000 lire; for the Bank of Sicily, from 
12,000,000 to 15,000,000 lire. 

The Government was authorized to establish by royal 
decree the conditions under which the banks could dis- 
count bills at a rate inferior to normal. This pro- 
vision expressed in a general way was defined by royal 
decree of October 25, 1895, which stipulated that the banks 
of issue, independently of the faculty of discounting at a 
rate of i per cent below normal the paper of the people's 
banks and other intermediary institutions, should be 
allowed also to discount at a rate below normal, bills of 
not more than three months' currency, presented and 
guaranteed by banking and commercial firms of the first 
order. This faculty was subject to the condition of keep- 
ing the circulation within the normal limit. The minimum 
rate of discount was to be fixed every three months by the 
decree of the minister of the treasury and could not go 
below 2)% per cent. 

This provision which added another distinction in the 
rate of discount of Italian banks has seemed an Italian 
novelty and has been discussed and criticized in various 
ways as a proof of a lack of unified standards and action in 
the delicate instrument of the rate of discount. It will be 
timely, therefore, to make clear, first of all, that it is not 
in the least a question of an Italian novelty, since other 
foreign banks of issue, including the Imperial Bank of 
Germany and the Bank of England, are in the habit of dis- 
counting or buying (a difference in form which does not 
change the substance) bills of exchange at a rate different 
from the normal or official one. In what particularly 



145 



National Monetary Commission 

concerns Italy it must be remembered that the variation 
in the value of money from region to region is more notice- 
able than in other countries; hence the official rate of 5 
per cent, which represents an average price of money in the 
greater part of southern Italy, a region less fully provided 
with available capital, proves in normal times high in 
central Italy and even higher in northern Italy. Besides, 
in Italy as in other countries, there may be in one single 
province, and even in one single city, a difference in the 
value of the bills of exchange tendered and worthy of 
being admitted to discount, a difference which justifies 
a diversity in treatment. 

But the provisions mentioned above with regard to the 
rate of discount were in a special way justified at the 
time when they were decided on by the conditions of the 
discoimt operations of the banks of issue, since it would 
not have been reasonable to treat in the same way clients 
who presented real commercial paper, payable on ma- 
turity, and those to whom it was necessary to grant de- 
lays and renewals for the payment of their debts. 

Another important modification of the law of August 
10, 1893, was made by the law of August 8, 1895, with 
regard to the time assigned the banks for the liquidation 
of operations not in liquid form or contrary to the law, 
which was increased from ten to fifteen years. In con- 
sequence it remained established that in each three years 
the banks would have to liquidate a fifth of the opera- 
tions; and it was correspondingly stipulated that the ex- 
traordinary inspection of these banks should be made 
every three years. 



146 



The Banks of Issue in Italy 

This important and substantial modification of the law 
of August lo, 1893, was made advisable by the necessity 
of not placing the banks of issue in a condition of mani- 
fest inferiority in comparison with the market, which 
might be able to dictate its own conditions to the banks, 
profiting by the peremptory necessity they were under of 
liquidating an enormous mass of intricate operations not 
in conformity to the law. With regard particularly to 
the liquidation of operations where it was necessary to 
sell the real property that stood as guaranty, the period 
of ten years seemed too short, especially as the real estate 
market still remained inactive and did not attract capital- 
ists desirous of getting a suitable return for their money, 
which could not be had from houses, as they were still 
more plentiful than necessary. 

And it was also considered that in offering the market 
a great quantity of real estate the conditions of real prop- 
erty, already depressed, would be still more aggravated, 
causing by reflex a disorder of the public economy, espe- 
cially in the capital of the Kingdom and in other cities in 
which the building crisis had assumed a somewhat serious 
character. 

It was necessary, therefore, to give a longer time to 
allow the banks to free themselves gradually from real 
estate, without yielding to the exaggerated, usurious de- 
mands of the capitalists, who wanted to buy for half price, 
or even less. And it was greatly to the credit of Signor 
Sonnino, a long-time partisan of the energetic and violent 
cure of the banking evil from which the country was suf- 
fering, that he recognized, in the face of the true situation 



147 



National Monetary Commission 

and its inseparable exigencies, the advisability of a gradual 
remedy, which ended, as we shall see, by giving unhoped- 
for results. 

By the same law of August 8, 1895, were granted vari- 
ous diminutions of fees for registration of deeds in buying 
and selling real estate, conveyances of mortgage loans, and 
other operations of liquidation, for the purpose of facili- 
tating realization on the intricate operations of the banks ; 
and it was stipulated besides, to facilitate the liquidation 
of the realty credit branches of the banks and to straighten 
out the relations between the two. 

In consequence of the substantial changes made in the 
law of August 10, 1893, the statutes of the banks of Italy, 
Naples, and Sicily were also modified. 



148 



Chapter XI. 

THE MILITARY DISASTER IN AFRICA AND ITS CONSEQUENCES — 
THE RUDINI MINISTRY — NEW BANKING ACT PROPOSED BY 
MINISTER I.UZZATTI. 

The military disaster of Adowa, in which the Italian 
forces were wiped out after being surrounded and van- 
quished by the whole Abyssinian army, was the occasion 
on March i, 1896, of the downfall of the Crispi Ministry, 
which was succeeded by a new Rudini Ministry, whose 
minister of the treasury was Signor Colombo. The lat- 
ter recognized at the very outset the urgent necessity of 
a loan to meet the expenses of the African war, a loan 
which was issued for 132,000,000 lire. Meanwhile the 
African disaster arrested the improvement that the work 
of Minister Sonnino had brought about in the financial and 
economic situation of Italy. Italian rentes declined at 
Paris from a maximum quotation of 97.33 to a minimum 
of 86.25 and exchange went up from 104.50 to 112.62. 

This turn for the worse made clear once more that the 
exchange rate, especially in debtor countries with abnormal 
finances, does not depend simply upon the conditions of 
the paper currency. In fact, the currency, by the gradual 
liquidation of heavy operations, was continually decreas- 
ing in quantity and growing better in quality; the cur- 
rency was also growing better by the increase of the 
metallic reserve which amounted in 1896 to 47 per cent 
of the notes against 32 per cent in 1893 and exerted a 
favorable influence on exchange which had gone down 
from 116 to 104. In spite of this, a military incident 

149 



National Monetary C ommis s io 



n 



entirely foreign to the conditions of the banks and the cir- 
culation was sufficient to make exchange go up again to 
112.62, through the decline of Italian rentes abroad and 
their return to Italy. 

Meanwhile a grave dissension which had broken out in 
the Rudini Ministry with regard to military expenditures 
occasioned the resignation of the minister of the treasury, 
Colombo, and others. Signor lyUzzatti returned then to 
the direction of the treasury and took up afresh the ex- 
amination of the problem of the currency and the banks, 
in whose situation various points were gradually being 
cleared up that had not been carefully observed in the 
official inspection of these institutions. 

In regard especially to the Bank of Naples, the situation 
had proved so grave and threatening, Minister Luzzatti was 
obliged to declare, as to require urgent extraordinary pro- 
visions. 

Signor Luzzatti was also led to resume the examina- 
tion of the banking problem by the consideration of the 
grave responsibility assumed by the State in the matter 
of the paper currency on which he had conferred legal 
currency, thus obliging the citizens to accept the notes of 
the banks. The case of the Banca Romana was too recent 
and too serious for this problem not to demand profound 
consideration and the suggestion of provisions directed 
toward guarding both the public interest and that of 
the State. 

But besides saving the Bank of Naples from imminent 
ruin and assuring the guaranty of the bank notes, the min- 
ister of the treasury aimed at making possible a more 



150 



The Banks of Issue in Italy 

speedy liquidation of old operations not realized on or con- 
trary to the law. 

Guided by these standards and keeping in view the pur- 
poses mentioned above, the minister of the treasury pre- 
sented resolutions which because of urgency were issued 
by royal decree, and afterwards approved in a provisional 
way by the law of January 17, 1897, and definitely sanc- 
tioned by the law of March 3, 1898, by which were modi- 
fied and adapted several of the articles contained in the 
royal decrees and in the law of provisional application. 
Passing over the articles in detail, several of which it was 
not considered necessary to put into effect, it will be help- 
ful to examine the more important ones which caused 
a noticeable modification of the regime established by 
the preceding laws. 

To make sure of the full guaranty of notes the law pro- 
vided that the banks of issue should put aside, subject to 
the inspection and control of the ministry of the treasury, 
a metallic reserve, comprising in this the part employed 
in discounts of foreign bills of exchange and foreign treas- 
ury bonds, and in foreign credits for the minimum amount, 
irreducible, of 300,000,000 lire for the Bank of Italy, 
90,500,000 lire for the Bank of Naples, and 21,000,000 
lire for the Bank of Sicily. 

The metallic reserve could not be diminished even in 
case it should happen, as a result of the reduction of the 
circulation, that it represented more than 40 per cent of 
the circulation, and was to rest as guaranty for a corre- 
sponding amount of notes. For the part of circulation not 
covered by the aforesaid reserves, the holders of notes had 



151 



National Monetary Commission 

a claim on the other gold and silver specie belonging to the 
banks, having deducted their part to be left as a guaranty 
for sight liabilities to the amount of 40 per cent ; on Italian 
treasury bonds or other Italian state securities or secur- 
ities guaranteed by the state, including for the Bank of 
Italy, the sums set aside for the liquidation of the Banca 
Romana; on foreign bills of exchange not included in the 
discounts available for the metallic reserve; on loans on 
collateral ; on domestic liquid discounts. For the Bank of 
Naples were included also the state securities comprised 
in the metallic resertT'e, of which we shall speak later, and 
temporarily the amount of the credit of the bank to its 
own credit foncier administration. For the further pro- 
tection of holders of bank notes the banks were forbidden 
to engage in granting sureties. 

As a result of this provision, there were tied up 
411,500,000 lire of metallic reserve, or its equivalent, 
representing 48 per cent of the minimum total of 
864,000,000 lire, the amount to which the banking cur- 
rency was required gradually to decrease, according to the 
law. At the same time the law was abrogated with re- 
gard to the tying up of 200,000,000 lire of metallic reserve, 
in exchange for which the State could issue an equal amount 
of its own notes. The maximum total of these notes was 
limited to 600,000,000 lire, and the total remained fixed at 
125,000,000 lire of loans that the Bank of Italy and the 
Bank of Sicily w^ere to make the treasury, 1 15,000,000 and 
10,000,000 lire, respectively, the Bank of Naples being 
excluded from the necessity of making loans to the 
treasury. 



152 



The Banks of Issue in Italy 

With regard to the provisions intended to hasten the 
Hquidation of operations not in hquid form or not in 
conformity to the law, it was further stipulated that the 
gradual diminution of the normal circulation guaranteed 
by the reserve of 40 per cent should be anticipated, so that 
the Bank of Italy, which was to reduce it by 34,000,000 lire 
in 1897, should reach the minimum limit of 630,000,000 
lire in 1905 instead of 1908; the Bank of Naples would 
reach that of 190,000,000 lire in 1906 and the Bank of 
Sicily that of 44,000,000 lire in the same year. 

To facilitate and hasten the liquidation of old oper- 
ations, Signor Luzzatti, although leaving unchanged the 
provisions of the preceding law in as far as they set forth 
the obligation of the banks concerning the length of 
time in which the said liquidation was to be accomplished, 
evolved a plan based on the idea of the intervention of the 
State in favor of such banks as should give more active 
and successful attention to attaining the desired end. 
And since among the operations to be liquidated there 
were several guaranteed also by public securities not 
admitted by law, he proposed that these operations 
should be considered liquidated whenever the bank had 
sold the securities and invested the proceeds in state 
securities or securities guaranteed by the State. 

For the other operations to be liquidated, provision 
was made to compensate such banks as had suc- 
ceeded at given times in liquidating certain sums beyond 
the required amount, by giving them the privilege of 
investing in treasury notes up to a stated limit, or em- 
ploying abroad a part of the metallic reserve in addition 
to the amount permitted by the preexisting law, the pro- 



153 



National Monetary Commission 

portion being increased from 7 per cent to 1 1 per cent ; or 
in case the minister of the treasury should not think best, 
for considerations of a monetary nature, to allow further 
employment of the metallic reserve, the banks were 
rewarded by a discount up to a fixed amount of the 
tax on circulation; and finally, by being allowed a gradual 
reduction of the said tax on circulation from i lira to 
50, 25, and 10 centesimi per cent. 

Beginning with the year in which the tax was reduced 
to this last rate, the State was to share the profits of the 
banks of issue, at the ratio of one-third of the profits 
between 5 and 6 per cent on the paid-up capital, for 
the Bank of Italy, and the free capital and ordinary 
statutory reserve for the Bank of Naples and the Bank 
of Sicily, and one-half of the profits in excess of 6 per cent 
for the three banks. 

Other provisions granted for a longer period the reduc- 
tion of taxes and supertaxes on conveyances of property, 
purchases and sales real estate, transfers of credits and 
conveyances at the banks of issue of the real estate 
adjudged to their respective credit foncier departments. 

These provisions, intended to facilitate and hasten the 
liquidation of the burdensome inheritance of the past, 
were, like the others contained in the preceding laws, in- 
spired by a lofty sentiment of justice, inasmuch as the 
Government wished to acknowledge by them that the 
State had had its share of responsibility in the banking 
ruin. The fact is that this very banking ruin saved the 
country, at a most difficult moment, even greater disasters. 



154 



The Banks of Issue in Italy 

But in order to make easier the attainment of the ends 
at which the Government was aiming, it was needful to 
provide again to regulate the relations of the banks of 
issue with their respective realty credit branches in liquida- 
tion, clearly separating the two administrations. It has 
already been seen that the credit of the realty branch 
of the Bank of Italy amounted to more than 49,000,000 
lire; and we have briefly outlined the provisions taken 
for the systematization of this account current and the 
satisfactory results obtained. We should add here that 
the Bank of Naples and the Bank of Sicily had, respect- 
ively, accounts of 46,000,000 lire and of 2,500,000 lire 
against their realty credit branches. There were in all 
about 98,000,000 lire of credit foncier deficits in liquida- 
tion which were burdening the institutions of issue and 
the circulation, and for which it was necessary to provide to 
prevent the situation from getting worse in this particular 
respect. 

As for the Bank of Italy, it was agreed that it should 
deduct 30,000,000 lire from the valuation of its own 
capital, reducing it to 240,000,000 lire nominal with 
180,000,000 lire paid up; and that, having closed the 
account current by the transfer to the bank of property and 
securities belonging to its realty credit branch, the bank 
could make loans to it on State securities or on securities 
guaranteed by the State at an interest not lower than 3.50 
per cent. The faculty was given to the credit foncier to 
maintain a constant circulation of realty bonds to the 
maximum amount of 220,000,000 lire, with the creation of 
new issues of bonds exclusively on the real estate holdings 



153 



National Monetary Commission 

of the bank; the bank in turn could obtain loans on its 
property also from other credit foncier institutions. 

The surplus of the credit foncier was to be maintained 
in the constant ratio of one-tenth of the effective circu- 
lation of the realty bonds. The bank could liquidate 
on account of the credit foncier the excess of the surplus 
beyond the tenth of the total realty bonds outstand- 
ing. But the bank never availed itself of this power and 
left the fund invariably at the sum of 30,000,000 lire, 
which at the end of 1908 exceeded by about 19,000,000 
lire the amount required by the ratio of 10 per cent of 
the realty bonds in circulation, which amounted to 
111,081,500 lire. 

Besides the ordinary surplus prescribed by the law, the 
credit foncier of the bank was obliged to deduct from 
the annual profits 300,000 lire to constitute, together with 
the interest accrued, an extraordinary surplus to be in 
vested in State securities or securities guaranteed by the 
State. By the law of July 7, 1905, concerning provisions 
in favor of borrowers of the credit foncier of the former 
Banca Nazionale and the Bank of Sicily, the requirement 
of keeping the above surplus, which was recognized as 
unnecessary, was removed. 

And since the Bank of Italy, along with the obligations 
imposed by the law, also had the rights that came to it 
from the agreement established in the treaty with the 
Government on October 30, 1894, which had put upon it 
the burden of the liquidation of the Banca Romana, a 
new agreement between the Government and the bank 
lYas needed to modify the provisions then in force, also 
because among the new provisions there was, as we have 



156 



The Banks of Issue in Italy 

seen, the reduction of the capital, for which was needed 
the approval of the meeting of the shareholders. The 
provisions as a whole were, however, granted in an agree- 
ment made November 28 of the year 1896, which was 
approved by the law of March 3, 1898, and ratified, as to 
the matter of the reduction of capital, by the shareholders' 
meeting held March 28, 1899, in which the statutes of the 
bank were accordingly modified. 

For the Bank of Sicily provisions were made almost 
analogous to those for the Bank of Italy, aiming at closing 
the account current with its realty credit branch. To 
this effect it was stipulated that 2,000,000 lire should 
be deducted from the ordinary reserve of the bank and 
charged to loss by unrealizable real estate operations. 

The situation that presented itself in the matter of the 
Bank of Naples was more difficult, considering the gravity 
of the condition of its realty credit branch, which was a 
serious menace to the bank, itself already in a sufficiently 
precarious condition. The Government, anxious as to 
the consequences that would follow the failure of this 
ancient institution, especially in southern Italy, decided 
to take exceptional provisions, and to cause the State to 
intervene directly under the form of suretyship and fiscal 
reliefs. 

With regard to the credit foncier it was in fact stipu- 
lated that its certificates, which bore interest at the rate 
of 5 per cent gross, should be withdrawn and replaced 
by others bearing 3.50 per cent net of any taxation. 
The State guaranteed the payment of interest on the 
certificates and their amortizement. The debt repre- 
sented by the realty bonds outstanding would be 



157 



National Monetary Commission 

amortized in fifty years, through a constant annual pay- 
ment, including the interest at the rate of 3.50 per cent. 

The realty bonds were to be cancelled according to 
the conditions established beforehand, except for the fa- 
cilities granted by the prolongation of the terms, in con- 
formity to the law. The bonds of the credit foncier 
should be accepted in payment of loans at a value to be 
determined every six months, on the basis of the average 
price for the preceding six months in the principal stock 
exchanges of the country, increased by 50 lire. This was 
to avoid artificial speculation in prices on the part of bor- 
rowers. If the average value ascertained should be over 
450 lire, the bonds would be accepted at par. The ex- 
cess resulting between the payments made by borrowers 
in reduction of the capital debt of the loan, and the quota 
of amortization included in the constant annuity to be 
used for cancelling the bonds in fifty years, was to be 
invested, up to the time of total cancelling of the bonds, 
in State securities or securities guaranteed by the State, 
and set aside in a special fund destined for the payment of 
the interest and reimbursing such bonds as still remained 
in circulation after the cancellation of the corresponding 
operations. 

In the law we are now examining, additional provisions 
were made regarding the closing of the account current 
of the bank of Naples with its credit foncier and the reim- 
bursing of the credit of the bank through the conveyance 
of 5,000,000 lire worth of real estate or mortgages, and by 
payment to the bank on the part of the credit foncier of 
the total of the personal property tax on the interest of 
the realtv bonds and the tax on the circulation of these 



158 



The Banks of Issue in Italy 

bonds which were made good by the State in favor of the 
bank. The sums paid over to the bank were to be in- 
vested in state securities or securities guaranteed by the 
State to form, with the accrued interest, a fiuid to serve as 
guaranty of the credit of the bank to its own credit foncier. 
For the remainder stipulations were made similar to the 
ones established for the Bank of Italy and the Bank of 
Sicily to facilitate the loans to be made to the credit fon- 
cier departments. 

But the bank of Naples itself needed special, urgent 
provisions directed to reconstruct, within not too long a 
time, its free capital. To this end it was stipulated that 
the Bank of Naples should invest a sum of 45,000,000 lire 
of its metallic reserve in state securities or securities guar- 
anteed by the State; but to avoid the alienation of the 
metal it was arranged that the said sum should be de- 
posited in the coffers of the state treasury, which should 
become owner of it, and pay, in exchange a like sum to 
the bank in state notes, that the bank should invest in 
state securities or securities guaranteed by the State. 
However, in order not to lessen the guaranty of the hold- 
ers of bank notes the state securities were converted into 
registered certificates with a lien in their favor. The in- 
terest on the state securities was to be used, from half 
year to half year, in restocking the metallic reserve with 
gold specie, through a gradual restitution of notes to the 
treasury, in order to redeem and withdraw a corresponding 
sum in metallic money. 

The operation, begun in 1897, for the entire sum of 
45,000,000 lire was reduced on June 30, 1909, to the sum 
of 23,277,555 lire, with which the Bank of Naples had 

39781°— II II 159 



National M on et ary Commission 

obtained, as a result of the above law, a reconstruction 
of capital amounting to 21,722,445 lire. 

Meanwhile the Government, in order to assure the 
exact, efficacious application of the exceptional provisions 
made in favor of the bank of Naples named as its general 
director Signor Nicola Miraglia, who was then deputy to 
Parliament, and general director to the ministry of agri- 
culture, industry, and commerce; a man of broad culture 
and great energy, who entirely fulfilled the expectations 
of the Government. 



160 



Chapter XII. 

DISORDERS OF 1 898 — THE COMMERCIAL AGREEMENT WITH 
FRANCE — EXCESS OF SPECULATION — NEW IDEAS IN THE 
MANAGEMENT OF THE BANK OF ITALY — NOTEWORTHY 
IMPROVEMENT IN THE FINANCIAL SITUATION. 

The series of provisions intended to facilitate the re- 
construction of the capital of the Italian banks of issue 
and to reform the currency by the liquidation of old 
operations not easily realized on produced an excellent 
impression, but it could not give immediate results, partly 
because in the year 1898 there appeared insurrectional 
movements in various parts of Italy, particularly at Milan 
and Apulia. These movements reacted injuriously on 
the financial and economic conditions of the country. 
Italian rentes, which had risen gradually again in Paris 
from the minimum quotation of 78, to which they had 
fallen in 1896 as a result of the military disaster in Africa, 
to the maximum quotation of 96.65, fell again to 87.45, 
and exchange which in 1897 ^^^ reached the minimum 
rate of 104.35 rose to 109.60. 

The significant features of the situation at that period 
bring clearly into evidence the damage that may be 
caused a country by political agitations and excessive 
speculation. The latter, in fact, after a brief period of 
inactivity following the decline in prices which came in 



161 



National Monetary Commission 

1897, as a result of the disaster at Adowa, and in the be- 
ginning of 1898 because of insurrectional movements, 
seemed to gain fresh vigor and set to work with the in- 
tention of making a prosperous campaign to advance 
prices, being encouraged in a particular way by the com- 
mercial agreement with France obtained by the Rudini 
ministry. This agreement produced an excellent im- 
pression in the country, not only because it revived trade, 
to the advantage of both countries and especially Italy, 
making due allowance for Italy's condition of inferiority 
to France, but also because it cancelled an ugly page of 
ill feeling and misunderstanding between the two sister 
nations that other pages, glorious and fraternal, had 
inscribed together on the battlefield. 

Meanwhile, however, the Rudini ministry, weakened 
by events that took place in the country and vigorously 
attacked by the constitutional opposition which had found 
an allied opponent in the extreme left, enraged as it was 
by the violently energetic measures with which the min- 
istry had conquered the revolt and restored order, handed 
in its resignation without even waiting for a vote of the 
Chamber. 

The excessive impetus given to affairs of a speculative 
nature caused great harm, thus retarding the benefits 
of the commercial Franco-Italian agreement, which 
became then very evident in the field of industry. 

The commercial movement of Italy, which had been 
represented in the year 1897 by a sum of 2,383,000,000 lire, 
exports and imports together, rose to 2,617,000,000 lire 



162 



The Banks of Issue in Italy 

in 1898 and to 2,938,000,000 lire in 1899. The excessive 
activity of speculation is clearly shown by the following 
variations in the prices of the principal securities: 



Baxica d'ltalia 

Banca Commerciale . . . . 

Credito Italiano 

Ferrovie Meridionali <* . . 
Ferrovie Mediterranee ^ 

Acciaierie Temi c 

Raffineria Lig. Lomb. <i 
Edison Co 



1898. 


1899. 


782 


I, 084 


650 


826 


508 


717 


712 


789 


512 


613 


419 


1,815 


320 


486 


390 


450 



Differ- 
ence. 



302 

176 

209 

77 

lOI 



+ 1,396 
+ 166 
+ 60 



a Southern railroads. 

i> Mediterranean railroads. 



c Terni Steel Works. 

d Ligurian and Lombardian refinery. 



With regard to the currency it is to be said that the 
progressive improvement which had been started by legis- 
lative provisions not only suffered a check, but even 
showed a backward movement. The many needs created 
by greater activity, united to those of speculation, made 
an increase in the paper of the banks, loans and discounts 
together, from 369,000,000 lire in 1897 to 538,000,000 lire 
in 1889. 

The increase from 50,000,000 lire to 116,000,000 lire 
in loan operations clearly indicates the intervention of 
the speculative factor. 

Corresponding to the increase of operations, the circu- 
lation advanced from 1,086,000,000 lire to 1,180,000,000 
lire, while the metallic reserve to cover the notes fell off 
22,000,000 lire, declining from 538,000,000 lire to 516,- 
000,000 lire so that the proportion between the reserve 
and the notes went down from 49 per cent to 43 per cent. 



163 



National Monetary Commission 

In Parliament and the press a lively debate was started 
on the condition of the market and the inefficacious 
action of the banks of issue in the face of it, to say noth- 
ing of the encouragement speculation had received from 
the promptness with which these institutions had fur- 
nished it superabundant aid. The Government inter- 
vened in the question, and having subjected the paper of 
the Bank of Italy to an examination, expressed the opin- 
ion that certain operations carried on by it under the 
form of discount of bills not having a commercial origin 
and guaranteed by securities were not in accordance 
with the law and requested that all such operations be 
eliminated. 

The bank provided, therefore, for liquidating the con- 
tested operations or for transferring them into others, 
which should answer in substance and form to the require- 
ments of the law. The loans of the three institutions fell 
in 1900 from 116,000,000 to 71,000,000 lire. The events 
of this period showed that rigid and severe provisions by 
law, statute, or regulation are not always enough to give 
a sound direction to the institutions of issue. 

In the year 1900 the general director of the Bank of 
Italy, Signor Giuseppe Marchiori, died. In 1894 he had 
succeeded the general director of the Banca Nazionale in 
the direction of the new Bank of Italy, to which he had 
rendered useful service. By unanimous consent of the 
superior council, approved by the Government, Prof. 
Bonaldo Stringher, a deputy to Parliament and under- 
secretary of State at the treasury, was elected general 
director. 



X64 



The Banks of Issue in Italy 

Since a change of method then took place in the gov- 
ernment of the Bank of Italy, it seems a fitting moment 
to examine the conditions of this bank and of the two 
others at this time with regard specially to the liquidation 
of old operations difficult to realize on. 

And it must be noted here that these operations 
amotmted to much larger sums than those discovered by 
the inspection made in 1894. 

Those of the Bank of Italy, placed by the inspectors at 
the sum of 449,420,000 lire, rose to 519,665,000 through a 
new audit made by agreement between the minister of 
the treasury and the bank, by putting in order the 
accoimt current of the credit foncier as to expenses, pur- 
chases of credits, and improvements on real estate. At 
the end of 1900 the operations remaining to be liquidated 
amounted to 245,000,000 lire; therefore 274,400,000 lire 
were already liquidated, composed of 56,700,000 lire in 
payments on bills of exchange, 96,300,000 lire in payments 
on various credits, 36,000,000 lire in transfers of securi- 
ties not admitted by law into others admitted by law, 
and 19,300,000 lire in sales of real estate, making in all 
209,000,000 lire. To complete the sum of 274,400,000 
lire payment of 30,000,000 lire was arranged for, to be 
made by the shareholders in conformity to the agreement 
of 1894; 30,000,000 lire was deducted from the capital 
established by the agreement of 1896, and 5,300,000 lire 
were raised on a loan stipulated with the Istituto Italiano 
di Credito Fondiario. It was then remarked that the 
effective liquidation was represented by 172,000,000 lire 
collected in payment of bills of exchange and credits 



165 



National Monetary Commission 

for a total of 153,000,000 lire, and of only 19,300,000 
lire collected for the sale of real estate; it was said that 
this result was attained with comparative ease, because 
the bank had been able to liquidate the part of its assets 
that was easiest to realize on. It was therefore concluded 
that the greatest effort was already made and that 
the bank would not succeed in freeing itself from the 
heavier burden that still remained. 

It should be said that such a conclusion was not sin- 
cerely felt and impartially expressed. It was intended to 
impress public opinion and to exert pressure on the Gov- 
ernment and the bank to make the latter sell off in a 
block its real estate, giving it at a low price to a company 
that was to be organized. 

Taken as a whole, the operations not realized on of the 
three institutions amoimted at the end of 1900 to 
373,261,839 lire. 

'With the year 1900 there began in Italy a period of 
financial solidity and economic progress. The ponderous 
obstacles against excessive expenditures raised by the 
Honorables Giolitti, Sonnino, and Luzzatti; the determina- 
tion already made by Sonnino and energetically continued 
by lyUzzatti to cease making any issues of bonds so that 
through the proposal of vSignor Luzzatti, there were in- 
cluded in ordinary expenditures the expenses for the 
construction of railroads, for which provision had been 
made until then by issuing bonds; the vigorous im- 
pulse given to the industrial movement; and the right 
administration of the banks and currency — all these 
things produced a salutary effect throughout the country. 



166 



The Banks of Issue in Italy 

The budget closed in the years named with surpluses 
as follows : 

Lire. 

1899 5, 000, 000 

1900 41 , 000, 000 

1901 32, 000, 000 

1902 69, 000, 000 

1903 34, 000, 000 

1904 48, 000, 000 

1905 63, 000, 000 

The commercial movement expanded prosperously. 
From 2,938,000,000 lire in 1899 it rose gradually to 
3,795,000,000 lire in 1905. Exchange, which still remained 
at 108.50 in 1899, went down gradually until it reached in 
1902 the rate of 98.89, fluctuating a little above or a little 
below par in spite of the fact that Italy was redeeming 
from abroad large sums in government rentes and other 
securities. 

All this showed clearly that Italy had now become a 
creditor country. The relatively small quantity of 
Italian securities still owned abroad were in the hands of 
capitalists who kept them as permanent investments, and 
no longer constituted an uncertain element of disturbance 
for the monetary economy of the country. The Paris 
Bourse, on which the whole Italian market had depended 
in the past, indicated and still indicates to-day, on a few 
days of the week only, the price of Italian government 
stock, henceforth entirely unspeculative. It had advanced 
on the Paris market from 96.75, the maximum price of 
1899, to 106.60, the maximum price of 1905. 

As a result of this new situation, Italy, which was 
once obliged to provide for payments to be made abroad, 



167 



National Monetary Commission 

on account of the State and the country, by shipments of 
metal or a continual stream of new bond issues, began 
instead to receive annually important sums of gold and sil- 
ver that flowed into the coffers of the banks of issue, which 
gave bank notes in exchange. Their metallic reserve, 
which amounted to 600,000,000 lire, of which 61,000,000 
lire were a cover for sight liabilities, went up at the end 
of 1905 to 1,076,000,000 lire, of which 78,000,000 lire were 
a cover for sight liabilities. The circulation increased 
from 1,180,000,000 lire in 1899 to 1,406,000,000 lire in 
1905, and the ratio between the metallic reserve and the 
notes, which had fallen in 1899 to 43 per cent, went up 
gradually to 70 per cent, while at the same time the ledger 
of discounts and loans of the banks of issue, which was 
now purified, aiding and seconding the economic earnings 
of the country, increased from 318,000,000 lire in 1897 to 
589,000,000 lire in 1905. 

Meanwhile the work of improvement of the banks of 
issue was progressing. These institutions were continu- 
ing to liquidate operations not realized on, and were pro- 
viding in conformity with the law to reconstitute their 
capital. The activity of the Bank of Italy in 1900 was, 
in this respect, energetic and profitable. Having pro- 
vided for systematizing its relations with its credit 
foncier in liquidation, the Bank, as we have seen before, 
operated to good advantage the conversion of its realty 
bonds. 

Because of the importance it had for public interest, as 
well as for the Bank of Italy and the Bank of Naples, 
mention should be made here of the agreement entered 
into between the Government and the two banks in order 



x68 



The Banks of Issue in Italy 

to assure the completion of the work of the sanitation of 
the city of Naples, an undertaking which had been decided 
upon after the outbreak of cholera, which plunged that 
beautiful city into mourning in the year 1884. The Bank 
of Italy and the Bank of Naples, which were largely in- 
volved in the '* Societa per il Risanamento di Napoli," con- 
sented to contribute the sum of 8,000,000 lire, of which 
7,200,000 lire was furnished by the former and 800,000 
lire by the latter, while the State participated with 
7,000,000 lire. The sum to be used for this purpose was 
to be taken from the guaranty funds of the respective 
realty credit department, to which it should be restored 
at the charge of the banking administrations, by annual 
quotas, during a period of twenty -five years, until the 
liquidation and realization of the credits of the two banks 
should have permitted the integral reimbursement of the 
sum still due the realty credit department. To these, 
meanwhile, the banks themselves ceded for their respective 
amounts the mortgages already made out in their favor 
on the property of the Societa per il Risanamento di Napoli. 
The Bank of Italy and the Bank of Naples were further 
authorized to make the Societa del Risanamento loans for 
fixed sums at an interest of 3.50 per cent. 

As a result of the financial assistance given toward the 
completing of the sanitation of Naples, the Bank of Italy 
and the Bank of Naples were authorized to deduct from 
the amount of operations not realized on that must be 
liquidated within 1908, the respective credits not liqui- 
dated against the Societk del Risanamento. 

Meanwhile, along with the improvement of the financial 
conditions of the State and the national economy, improve- 

169 



National Monetary Commission 

ment likewise began to be evident in the real-estate market, 
whether as a result of the gradual increase of the popula- 
tion in Rome and other centers, or through a spontaneous 
return to these values of the capital which, owing to the 
high price of transferable securities and the expectation of 
a conversion of the public debt, now considered ripe, was 
less disposed to investment in these securities. It was 
then that with a happy insight into the situation which was 
taking shape the general director of the Bank of Italy con- 
ceived the plan of making a more rapid and convenient 
transfer of the real estate that was serving as a guaranty 
for the operations not realized on, through conveyances 
of property to building or construction companies. The 
bank had now got beyond the period in which the narrow 
limits of the law on the one hand and the depression of real- 
estate values on the other placed it in a position of infe- 
riority toward the market. The fortunate results obtained 
from the patient attention given to its own building up 
and the favorable situation in general had now placed the 
bank in a position to treat on a basis of equitable condi- 
tions. Of the final result of the operations carried through 
by the Bank of Italy from 1900 we shall speak later. It 
is enough to state here that the plan conceived by its 
general director was not long in giving good results, since 
at the end of the year 1905 real estate sales made to 
building and construction companies already amounted 
to about 45,000,000 lire and operations not realized on 
still to be liquidated amounted to 84,369,400 lire, about 
87,000,000 lire having been made good with the fund 
put aside by the amounts deducted from the annual 
profits. 



170' 



Chapter XIII. 

THE CONVERSION OF ITAUAN RENTES AND ITS EFFECT ON 
THE MONEY MARKET — THE CRISIS OF 1907 — MODIFICA- 
TIONS OF THE BANKING ACT. 

As we have already seen, public opinion in Italy now 
considered the market prepared to make a conversion of 
Italian rentes 5 per cent gross (4 per cent net) , especially 
as a former conversion of domestic 4>^ per centsto3>^per 
cents net had been successful. And, indeed, with a finan- 
cial situation like that in Italy, the strength of which w^as 
daily increasing through an uninterrupted series of rela- 
tively notable surpluses, the belief did not appear un- 
founded that Italy could reduce the burden of interest on 
the great body of its public debt by means of an honorable 
operation in conversions. Already various negotiations 
made with this purpose in view had had to be suspended, 
because of numerous difficulties of a monetary or political 
nature arising in the international market. The war be- 
tween Russia and Japan kept the conversion from being 
carried out in 1 905 ; but in the following year under the 
ministry presided over by Signer Giolitti, in which Signor 
Giuseppe Majorana was minister of the treasury, the great 
operation, with the help of Signor Luzzatti and of the 
general director of the Bank of Italy, was accomplished in 
a most fortunate manner, thanks especially to the prompt 
cooperation of French high finance, which wished to give 
Italy a mark of special sympathy. 

The conversion was made by the reduction of the inter- 
est from 4 per cent net to 3^ per cent net, with a further 



171 



National Monetary Commission 

reduction to 3>^ per cent after five years. The result 
of the operation may be summed up as follows : Out of a 
sum of 8,100,434,840 lire the reimbursement at par was 
asked for 4,689,700 lire, of which 1,661,900 lire were 
domestic and 3,027,800 lire foreign. It may indeed be 
asserted that never in any country has an operation of 
conversion of this importance had such a brilliant success. 

But the legitimate satisfaction of Italy in this auspicious 
event, which crowned a long series of sacrifices and of 
sound and fruitful activity and economy, was to be in a 
short time, partly because of this very event, tempered 
by the arrival of a speculative crisis which produced 
a serious disturbance of the money market, with an 
inevitable reflex action on the general conditions of the 
economic structure. Already, beginning with 1905, the 
improved financial conditions of the State and the eco- 
nomic conditions of the country had provoked a speculation 
for the rise of all securities, which was pointed out by a 
few unheeded observers as extremely exaggerated and 
dangerous. The price reached by the aggregate of Italian 
securities represented a 70 per cent increase over their 
nominal value, without, of course, any justification for 
this increase by a corresponding increase in prosperity in 
banking, industrial, and commercial undertakings, and by 
larger dividends. 

On the contrary the securities that rose the highest in 
price were precisely those of companies recently created, 
which had not yet distributed any dividends, and also 
those of companies which had distributed dividends corre- 
sponding to 2 or 3 per cent of the current price of the 
shares. The watchword, faithfully passed on by the body 



172 



The Banks of Issue in Italy 

of speculators, was that they must discount in good season 
a brilliant future of economic prosperity. 

In the autumn of this same year of 1905 there was a 
brief pause that occasioned a decline in prices; however, 
speculation for the rise was not abashed, but on the con- 
trary showed the inclination to resume with greater eager- 
ness its place in the fight, being encouraged still more to 
continue in its work by the negotiations already mentioned 
for the conversion of government stock, which was regarded 
as imminent and which would cause new currents of capital 
to converge on banking, industrial, and commercial secu- 
rities. The quotation on the stock exchange of these 
securities, which amounted in 1904 to 2,420,000,000 lire 
had risen in 1905 to 3,280,000,000 lire and in 1906 to 
3,720,000,000 lire, with an increase in the three years of 
1,300,000,000 lire, or about 58 per cent, while the paid-up 
capital of the joint-stock companies had increased merely 
for the greater part by the formation of new companies 
by 753,000,000 lire, advancing from 1,585,000,000 lire to 
2,338,000,000 lire. 

These figures alone are enough to give a clear idea of the 
degree of speculative inflation which the Italian market 
had reached and to show how amply justified was the fore- 
sight that the edifice artificially reared and without any 
solid foundation must inevitably collapse. And, indeed, 
it would have collapsed in a short time even without the 
crisis that seized at this moment the American market and 
those of several European countries. 

As it had always happened in Italy in like cases, as 
soon as a certain stringency in the money supply made itself 
felt, as soon as the higher contango made speculators 



173 



National Monetary Commission 

feel tardily all the gravity of the situation into which 
they had recklessly plunged, and gave an inkling of 
imminent danger of disaster, on all sides the Govern- 
ment and the banks of issue were called on to intervene. 
With heedless boldness an increase of bank circulation 
was called for, under the pretext that the needs of industry 
and commerce required a larger money supply. 

But the Government and the general director of the 
Bank of Italy, in agreement with the general directors of 
the two other banks, decided that frenzied and heed- 
less speculation ought not to be subsidized, and that in- 
stead it was desirable to liquidate a dangerous and unten- 
able situation, using at the same time all due precaution 
to prevent the evil from spreading to sound parts of the 
country and attacking the living sources of industry. 
Thus, as soon as the grave difficulties were known in 
which the Societa Bancaria Italiana was involved, because 
of the tying up of a large part of its capital and serious 
and irreparable losses; as soon as the panic spread in 
the country because of the apprehension that, through 
the swift contagion of terror it might be communicated 
to other institutions, the general director of the Bank of 
Italy was ready to intervene to avoid the disaster that 
was threatening. He consented to put at the disposal of 
the Societa Bancaria Italiana the capital needed to meet 
the pressing necessities of the situation, and obtained also 
to this end the contribution of banks and bankers who 
consented to furnish a part, though not an important 
part, of the amount needed. The general director of the 
Bank of Italy asked, however, that the administrators of 
the company should make themselves personally Hable; 



174 



The Banks of Issue in Italy 

that the capital of the company should be reduced from 
50,000,000 lire to 20,000,000 lire and should then be 
restored by a new payment of 20,000,000 lire ; in this way 
the capital w^as to be reduced to 40,000,000 lire. 

The immediate arrangement of the position of the 
Societa Bancaria, which as a result of this energetic action 
found itself in a most solid situation, put an end to the 
alarm in the country. The Bank of Italy had given the 
Societa a total credit of 42,000,000 lire. At the end of 
May, 1909, the credit was reduced to about 5,000,000 
lire through discount of commercial bills and loans on 
securities. 

This assistance, very different from the forms of aid 
that had been afforded twenty years before, showed how 
effective a safeguard for a country is the existence of a 
great bank of issue in moments of difficulty and dis- 
turbance; and it showed further that the most difficult 
ordeals can be surmounted and the most severe disasters 
avoided by comparatively insignificant means, when there 
is no lack of precise perception of the situation and 
promptness in meeting it. 

The same thing, which has been observed on other occa- 
sions, appeared contemporaneously in even more impress- 
ive form in the prodigious effect produced on the interna- 
tional market by the prompt intervention of the Bank of 
France, which succeeded in arresting the panic and dimin- 
ishing the intensity of the crisis in the United States, in 
England, and, together with the more direct aid of the 
Bank of Austria- Hungary, even in Germany, by putting 
at the disposal of the Bank of England not more than 
82,000,000 lire. 

39781°— II 12 175 



at ion at M o n et ar y Commission 

It must necessarily seem inexplicable that the markets 
of coiossally rich countries should find themselves exposed 
to profound disorders and grave disasters because of the 
lack of less than a hundred million lire. The reason is that 
crises are considerably aggravated by fear, which causes 
the disappearance from the market of a great part of the 
capital at the very moment when there is greatest need 
of it. This psychological cause of the aggravation and 
prolonging of crises is instantl}^ removed when it is known 
that the great institutions are disposed to intervene, be- 
cause this is sufficient to restore confidence and bring 
timid capital out of its hiding places. But in addition to 
this, it must be stated that in moments of crisis it is always 
a relatively limited amount that is needed to meet the 
differences in operations which in the great body are 
arranged by mutual compensations. 

The examples afforded by the history of crises and 
repeated in 1907, show once more not only the great use- 
fulness of the existence of powerful banking institutions 
but also the absolute necessity that their supreme direction 
should be intrusted to men of great ability who under- 
stand the vast problems of credit and monetary econ- 
omy in which are summed up, as in a synthesis, all 
the problems that touch the economic life of a country. 
For it is not enough that the person in supreme con- 
trol of a great institution of issue should have an 
ordinary business sense such as must be possessed by 
a manufacturer, a merchant, or the director of a credit 
institution, if his affairs are to be well managed. It is 
undoubtedly imperative that a bank of issue shall accept 
for discount only bills of exchange that represent valid 

176 



The Banks of Issue in Italy 

transactions, promptly payable on maturity. But the 
efficient cooperation of all the directors provides for 
that, especially as they are assisted by a large staff of dis- 
count advisers. Together with the duty of watching closely 
the quality of the operations concluded by the establish- 
ments, a higher function is incumbent upon the general 
director of a great bank of issue; he should have a mind 
capable of understanding the grave problems of monetary 
economy that may suddenly force themselves on his 
attention and that he must be able to solve Avithout hesi- 
tation or uncertainty, with practiced speed, in order to 
ward off a convulsion from the country or, by prompt 
intervention, to lessen its disastrous results. Therefore, 
a great institution of issue, while it is able in tranquil and 
normal times, by a wise distribution of credit and a correct 
regulation of the currency to give vital aid to every 
sound form of activity and to be a valuable element of 
economic well-being, can then perform the important 
functions of healing and effacing the consequences of any 
misfortune that falls upon the country. Nor in order to 
perform properly this very lofty function is it always 
enough to study assiduously the economic and monetary 
conditions of one's own country ; since a disturbance may 
also be determined by the reflex of a crisis that breaks 
out in other countries for political, monetary, or specu- 
lative reasons. 

Meanwhile, though the after effects of the crisis are not 
entirely done away with, even yet, especially in the harm 
done to certain industries, the situation was no longer 
acute, and Signor Carcano, minister of the treasury, was 
able to turn his attention to several timely modifications 



177 



National Monetary Commission 

in the banking law. Although firmly convinced that the 
base and limits of the paper currency ought not to be 
substantially modified he recognized that the recent 
experience had shown that it lacked the necessary elas- 
ticity to enable the banks of issue to adapt their work- 
ings to the changing needs of the market, especially in 
case of monetary stringency. The resolution presented 
by Minister Carcano was ratified by Parliament and 
became a law^ December 29, 1907. 

He proposed a slight increase of the circulation, as f ollow^s : 
For the Bank of Italy from 630,000,000 to 660,000,000 lire; 
for the Bank of Naples from 190,000,000 to 200,000,000 
lire; for the Bank of Sicily from 44,000,000 to 48,000,000 
lire. 

The irreducible metallic reserve to be left as guaranty 
for holders of notes was, however, to be increased: For the 
Bank of Italy from 300,000,000 to 400,000,000 lire; for the 
Bank of Naples from 90,500,000 to 1 20,000,000 lire; for the 
Bank of Sicily from 21,000,000 to 28,000,000 lire. 

The Bank of Sicily continued to enjoy the privilege 
already granted by the laws of 1906 and 1907 of an 
increase of 10,000,000 lire in bank notes, to be used 
exclusively for loan and discount operations in favor of 
the sulphur industry. 

Minister Carcano proposed further, along with other 
stipulations of minor importance, that the limits of the 
issue of bank notes beyond the normal circulation and 
the relative taxes on circulation should be modified in the 
following manner: For the Bank of Italy from 45,000,000 
to 50,000,000 lire; for the Bank of Naples from 14,000,000 
to 15,000,000 lire; for the Bank of Sicily from 3,500,000 to 



178 



The Banks of Issue in Italy 

4,000,000 lire, with the payment of a tax equal to one- 
third of the discount rate. 

In addition to the above sums, and up to double their 
amount, it should be modified by a tax equal to two-thirds 
of the discount rate. 

For subsequent issues, and up to the amount of: 

Lire. 

For the Bank of Italy 150, 000, 000 

For the Bank of Naples 45, 000, 000 

For the Bank of Sicily 12, 000, 000 

by a tax equal to the discount rate. 

Further increases of circulation or deficiencies of metal- 
lic reserve were to pay a tax of 7.50 per cent. 

Discount operations at a rate lower than normal in 
favor of people's banks and other intermediary institu- 
tions were increased : For the Bank of Italy from 70,000,000 
to 100,000,000 lire; for the Bank of Naples from 21 ,000,000 
to 30,000,000 lire; for the Bank of Sicily from 6,000,000 to 
9,000,000 lire. 

By this law^ was also approved an agreement entered 
into between the Government and the Bank of Italy to 
decide jointly certain questions that had arisen regarding 
the payment of the tax on circulation, and it was established 
that the bank was to pay under this head fixed sums; 
on the other hand, it should be authorized to comprise 
among the profits to be distributed to shareholders, for 
the years 1907 and 1908, a part of the income of the fund 
set aside to meet the losses resulting from the liquidation 
of old operations difficult to realize on. 



179 



Chapter XIV. 

THE RESTORATION OF THE BANKS OF ISSUE. 

With the year 1908, according to the provisions of the 
law, was completed the laborious work of restoration of 
the Italian banks of issue, and it was completed under 
more satisfactory conditions than there had been reason to 
foresee. The Bank of Italy in the period of eight years 
succeeded in liquidating operations for 245,000,000 lire, of 
which more than 108,000,000 lire were represented by real 
estate which had come into the hands of the bank for 
various credit accounts. We should state that the Bank 
of Italy not only did not profit by the statutory reserve 
to wipe out unrealizable operations, as the law would have 
permitted, but increased extraordinarily this reserve, 
carrying it by December 31, 1909, to the maximum total 
of 48,000,000 lire. The sales of real estate gave returns of 
more than 116,000,000 lire, of which 82,500,000 lire helped 
the liquidation of old operations, while the remainder was 
taken up by mortgages that encumbered the property 
sold. To complete the carrying out of the scheme for 
selling real estate in lots, about 14,000,000 lire in rural 
property, of which 10,865,000 lire were included in the 
account of operations not in liquid form, had been sold 
in 1907 to the Istituto di Fondi Rustici. 

The general director of the Bank of Italy, at the general 
meeting of shareholders held March 29, 1909, in summing 
up the work accomplished by the bank during fifteen 



180 



The Banks of Issue in Italy 

years, certified in conclusion a surplus fund of 32,000,000, 
in addition to the surplus which already resulted in the 
credit foncier in liquidation. This fund would serve to 
make up the deficit of the liquidation of the Banca 
Romana, for which the Bank of Italy must continue 
setting aside annually 2,000,000 lire until the end of 19 13. 

Considering that to make up for the losses of the liqui- 
dation of operations not in liquid form or not allowed 
by law, the shareholders contributed out of the annual 
profits a sum which together with the accumulated interest 
amounted to 1 13,000,000 lire, and also 60,000,000 lire capi- 
tal, of which 30,000,000 lire was paid up without increase 
of capitalization and 30,000,000 lire deducted from val- 
uation of capitalization — that is, 173,000,000 lire — it is 
seen that the total loss was, in round numbers, 140,000,000 
lire. 

The surplus of 32,000,000 lire, remaining as a final 
result of the liquidation of old operations, gave rise to 
the question as to the use to be made of it, taking into 
consideration the stipulations contained in the agreement 
made with the Government in 1894, which, foreseeing 
precisely this contingency of a surplus, authorized the 
bank to pay back gradually to stockholders the 30,000,000 
lire capital paid by assessment that year. 

The Bank of Italy considering that the cash fund for 
pensioning employees needed replenishing, since it had been 
almost used up in the pension service, inasmuch as the 
conditions of the cash balance of the bank did not permit 
making annual assignments of the sums needed for this 
service, and considering, moreover, the opportunity of con- 
tributing a special reserve to meet any contingency, 



ISI 



National Monetary Commission 

decided to arrange with the Government an agreement in 
which it engaged, in substance, not to restore to the share- 
holders the 30,000,000 lire capital paid by assessment 
and to employ for the above ends the surplus of 32,000,- 
000 lire and any other surpluses that might result from 
disposing of extraordinary assets. 

It is worth while reproducing here from the report of the 
general director of the Bank of Italy the following table, 
which shows the situation of the bank at the end of the 
years 1894, 1900^ and 1908: 

[Expressed in million lire.] 



ASSETS. 

Gold 

Silver 

Domestic discounts 

Loans 

Securities 

Foreign discounts 

Foreign credits 

LIABILITIES. 

Circulation 

Demand liabilities and accounts current 

Ratio between the reserve (deducting that for demand 
liabilities) and circulation per cent. 



December 3 i- 



1894. 1900. 1908 



292. 7 

67.8 

184. 2 

27.7 
71.8 

23- I 

10. 5 



826.4 
210. 3 



300 
46 

258 
35 

I7S 
72 
20 



820. 4 
190. S 



43-39 



). 27 



932. I 

no. 2 

388.6 

77-4 

164.8 

70.8 

26.8 



i,3»9. I 
195- 7 



77.46 



However, by December 31, 1908, the Bank of Italy had 
liquidated more than half a billion in operations of difficult 
realization and of a nature different from operations which 
banks of issue, in every well-regulated banking system, 
should undertake; the bank succeeded in doing this after 



182 



The Banks of Issue in Italy 

providing to meet and make up a loss of 140,000,000 lire 
resulting from the liquidation of these operations, after 
bringing up the statutory reserve to the sum of 48,000,000 
lire with an increase, after 1894, of 5,500,000 lire, holding 
besides among special reserves more than 5,000,000 lire 
to provide for a possible decline in the price of State 
securities owned by it, and for other purposes, with more 
than 16,000,000 lire of extraordinary reserve, already 
realized to the amount of 10,000,000 lire, the remainder 
still to be realized. So, in all, the bank has a reserve of 
about 70,000,000 lire. 

This much is given from the point of view of the capital 
and surplus. From the economic point of view, the 
bank appears on December 31, 1908, with an increase of 
682,000,000 lire in the metallic reserve — from 360,000,000 
lire to 1,042,000,000 lire — of which 640,000,000 lire were 
in gold; with an increase, besides, from 33,000,000 lire to 
97,000,000 lire in the discounts and foreign credits pay- 
able in metallic money; with an increase of 563,000,000 
lire in the circulation, which had advanced from 826,- 
000,000 to 1,389,000,000 lire and w^ith an increase from 
43.39 per cent to 77.46 per cent in the ratio between the 
metallic reserve and the notes in circulation. 



183 



National Monetary Commission 



The three Italian banks of issue show in the aggregate, 
from December 31, 1894, to December 31, 1908, the dif- 
ferences indicated in the following table: 



[Expressed in million lire.] 



ASSETS. 

Gold 

Silver 

Foreign discounts 

Domestic discounts 

Loans 

Securities 

Foreign credits 

LIABILITIES. 

Circulation 

Demand liabilities and accounts current 

Ratio between the reserve (deducting that for demand 
liabilities) and the circulation per cent . 



December 3 i- 



1894. 



4.33 
80 
23 

310 
67 

116 
12 

I. 126 
343 



1908. 



42 



I. 179 
132 
124 
550 
117 
259 
32 

1,862 
325 



74 



Differ- 
ences. 



+ 746 
+ 52 
+ 101 
+ 240 
+ 5° 
+ 143 
+ 20 

+ 736 
+ 18 



+ 32 



As may be seen, the metallic reserve, including the part 
represented by foreign credits and foreign treasury bonds, 
has increased from 479,000,000 lire to 1,391,000,000 lire, 
and, without taking into account the part that is to guar- 
antee sight liabilities at the ratio of 40 per cent, has gone 
from 42 to 74 per cent of the notes in circulation, w^hich 
have increased from 1,126,000,000 lire to 1,862,000,000 
lire. 

The discount operations of the banks, which amounted 
in 1894 ^o 310,000,000 lire (in which were still included, 
for large sums, operations not easily realizable, which were 
later accounted separately), are increased to 550,000,000 
lire, and, as has been shown by the accurate audits 



The Banks of Issue in Italy 

carried out, represent commercial paper surely payable 
on maturity; whereas, in the meantime, there has disap- 
peared from the bank statements with the liquidation of 
the old operations every trace of the heavy inheritance 
from a melancholy past, a result that is really gratifying. 

The circulation of the Italian banks of issue now answers 
in its entirety to the most severe standards of banking 
technique, since in addition to commercial paper and State 
securities and securities guaranteed by the State, it is 
protected by a very large metallic reserve and represents, 
for a noteworthy part, true and proper certificates of 
coin. 

For this reason, and also as a result of the withdrawal 
from abroad of an enormous body of Italian securities, the 
disturbing element of the money market has been removed 
and exchange remains nearly at par and is subjected only 
at intervals to the fluctuations, in the vicissitudes of inter- 
national trade, to which is subject even the exchange of 
countries possessing the firmest monetary basis. 

And, indeed, considering that after an adverse trade 
balance of 1,184,000,000 lire in 1908, there was one of 
1,245,000,000 lire in 1909, in which is included a greater 
importation of grain to the amount of about 116,000,- 
000 lire, in comparison with 1908; considering that the 
remittances of Italian emigrants in the United States 
were considerably less, and that likewise, because of 
the crisis of 1907 and the earthquake of last year, the 
number of tourists coming to Italy was greatly dimin- 
ished; considering that credits made to Italy by discount 
of bills of exchange have not been renewed by several 



185 



National M o n et ar y Commission 

foreign markets since the advance in the price of money 
at London and Berlin and elsewhere; and finally, consid- 
ering that the State has been obliged to make payments 
of large sums abroad for railroad materials, one cannot 
fail to recognize that Italian exchange, which has not risen 
above 100.60, has stood the test of fire. 

In this connection it is really interesting to note that 
while in 1882, notwithstanding the recent abolition of 
forced currency, effected through the importation of 
644,000,000 lire in gold, Italian exchange advanced sud- 
denly from 99.32 to 104.22 because of the reflex of the 
speculative crisis that seized upon the French market in 
that year, in 1907, on the other hand, exchange fluctu- 
ated only between the two extreme points of 99.65 and 
100.24, in spite of the fact that the crisis of the home mar- 
ket was aggravated by that of the foreign market. 

It would be impossible to demonstrate in a more elo- 
quent manner the difference between the situation of 
Italy at the two dates mentioned and the difference that 
exists with regard to exchange, between the conditions of 
debtor countries, with disordered finances and currency, 
and those of countries that are in the respects just men- 
tioned in a normal condition. There is no doubt that if 
the domestic and foreign crisis of 1907 had found Italy in 
the same condition as in 1882 and 1893, exchange would 
have had a sudden and considerable advance. 



186 



Chapter XV. 

THE PROGRESS OF ITAI^Y FROM 1 894 TO 1908 IN COM- 
PARISON WITH ENGLAND, FRANCE, GERMANY, AUSTRIA- 
HUNGARY, SPAIN, AND BELGIUM. 

And yet, the mere statement of the progress made by 
Italy in the last fifteen years can not give in the figures in 
which it is expressed sufficient elements to permit a just 
estimate of its importance, since the degree of progress or 
retrogression of a country can not be considered in and 
by itself, but must, in a proper and right judgment, 
be compared with the progress or retrogression of other 
countries in general, and in particular of those with which 
it finds itself in more immediate contact and in closer 
and more frequent business relations. A country that 
has advanced in a given period, in a given proportion, can 
not consider itself stronger, if, in the same period, other 
countries have advanced in much greater proportion, 
because it will find itself, in relation to these countries, 
in a position of relative inferiority. 

It is therefore timely to make a comparison between 
the principal financial, economic, and monetary indices 
of Italy and those of other countries from 1894 to 1908, 
in order to gain a clearer and more precise idea of the 
progress made by Italy. 



187 



National Monetary Commission 

The circulation of the principal European banks of issue 
has had, from 1894 to 1908, the following variations: 

^Expressed in million lire.] 



Bank of England 

Bank of France 

Imperial Bank of Germany . 
Bank of Austria-Hungary . . 

Bank of Spain 

Bank of Belgium 

Italian banks 



1894. 


1908. 


Differ- 
ence. 


646 


747 


-j- lOI 


3.481 


5.225 


+ 1. 744 


1,295 


2,370 


+ I.07S 


I, 066 


2, 218 


+ 1. 152 


909 


1,645 


+ 732 


446 


800 


+ 253 


I, 126 


1,862 


+ 736 



Per 
cent. 



15 
50 
83 
107 
80 
79 
6S 



The Italian banks of issue occupy the fourth place, in the 
increase, in absolute figures of the circulation, coming 
after the Bank of England, the Bank of Belgium, and the 
Bank of Spain; and they occupy the third place after the 
Bank of England and the Bank of France in the per cent of 
increase of the circulation itself. 

The metallic reserve has had the following variations : 

[Expressed in million lire.] 



Bank of England 

Bank of France 

Imperial Bank of Germany 
Bank of Austria-Hungary . 

Bank of Spain 

Bank of Belgium 

Italian banks 



1894. 


1908. 


Differ- 
ence. 


817 


772 


- 45 


3. 311 


4.371 


-t-i . 060 


I. 256 


I, 176 


80 


0644 


& I. 612 


-f- 968 


<= 533 


d I, 282 


^- 749 


c 229 


^343 


+ 114 


536 


9 1.477 


+ 941 



Per 
cent. 



- 5 
+ 35 

- 6 

+ 150 
-(-140 
+ 50 
+ 175 



o Of which 26,000,000 are in foreign paper. 

t> Of which 63,000,000 are in foreign paper. 

c Of which 275,000,000 are in silver and 57,000,000 in foreign paper. 

d Of which 810,000,000 are in foreign paper. 

« Of which 99,000.000 are in foreign paper. 

/ Of which 184,000,000 are in foreign paper. 

Of which 141,000,000 are in foreign paper. 



188 



The Banks of Issue in Italy 

The figures relating to the metallic reserve of the Bank 
of Spain can not rightly be compared with those of the 
other banks because of the unduly large amount of silver 
included in them, which far exceeds the ratio of 25 per 
cent allowed but not reached by the Italian banks. In 
order to reduce the metallic reserve of the Bank of Spain 
to a monetary value approximately comparable to that 
of the other banks, it seems just, therefore, to add to the 
amount of gold an amount of silver representing 25 per 
cent of the total, and to consider the surplus silver at its 
market value, according to the proposal made by the 
former Spanish minister of finance, Sefior Besada. The 
reserve of the Bank of Spain thus made up would be: 

[Expressed in million lire.] 





1894- 


1908. 


Differ- 
ence. 


Per 

cent. 


Gold 


257 

64 

127 


472 
157 
271 


+ 215 

+ 93 

+ 144 


+ 83 

+ 145 
+ 113 


Silver at the rate of 25 per cent 

Silver at commercial value 




Total 


448 


900 1 +41:2 


100 











It appears, therefore, that while Italy occupies, with a 
slight difference, the third place after France and Austria- 
Hungary in the increase, in the absolute figures, of the 
metallic reserve of the banks of issue, it occupies, on the 
other hand, the first place, at a considerable distance from 
the other countries, in the proportional increase of the 
reserve itself from 1894 to 1908, an increase equal to 175 
per cent. 



189 



National Monetary Commission 



This increase has a greater importance if one considers 
that gold enters into it in greater proportions than in the 
other countries, as appears from the following data: 



[Expressed in million lire.] 



GOLD. 

Bank of England 

Bank of France 

Imperial Bank of Germany 

Italian banks , 

Bank of Austria-Hungary 

Bank of Spain 

Bank of Belgium 

SILVER. 

Bank of England 

Bank of France 

Imperial Bank of Germany 

Italian banks 

Bank of Austria-Hungarj' 

Bank of Spain 

Bank of Belgium 



1894. 


1908. 


817 


768 


2, 070 


3.488 


799 


919 


433 


I. 179 


326 


I, 241 


200 


472 


88 


127 


00 


00 


I, 242 


883 


469 


306 


80 


132 


29 


308 


276 


8n 


41 


32 



Differ- 
ence. 



— 49 
+ 1,418 

+ 120 

+ 746 

+ 915 

+ 272 

+ 39 



00 
359 
163 

52 

279 

535 

9 



Percentage of silver to the total reserve. 



Bank of England 

Bank of France 

Imperial Bank of Germany 

Italian banks 

Bank of Austria-Hungary . , 

Bank of Spain 

Bank of Belgium 



1894. 


1908. 


Per cent. 


Per cent. 


00 


00 


37 


20 


37 


25 


IS 


10 


8 


19 


57 


63 


32 


20 



Differ- 
ence. 



Per cent. 

00 

-17 

— 12 

— S 
-f-ii 
-f 6 

— 13 



As may be seen, silver forms only 10 per cent of the 
reserve of the Italian banks. 



190 



The Banks of Issue in Italy 

The ratio between the reserve and the notes in circula- 
tion has had in the fifteen years the following variations : 




Bank of England 

Bank of France 

Imperial Bank of Germany 

Italian banks 

Bank of Austria-Hungary . 

Bank of Spain 

Bank of Belgium 



In this regard also the Italian banks occupy the first 
place with an increase of 32 per cent of the ratio between 
the metallic reserve and the notes. 

In consequence of the movement which took place in the 
paper currency and the metallic reserve of the same banks 
in the period from 1894 ^0 ^908 the total of bank notes 
not covered by reserve has varied as follows : 

[Expressed in million lire.] 



Per 
cent. 



Bank of France 

Imperial Bank of Germany 

Italian banks 

Bank of Austria-Hungary . 

Bank of Spain 

Bank of Belgium 



1894. 


1908. 


Differ- 
ence. 


170 


854 


+ 684 


39 


I. 194 


+ 1. 155 


590 


38s 


- 205 


422 


606 


+ 184 


461 


741 


+ 280 


218 


45 7 


+ 239 



+ 402 
+ 2963 
- 34 
+ 43 
-I- 60 
+ 109 



The uncovered circulation alone of the Italian banks has 
diminished by 205,000,000 lire, at the ratio of 34 per cent. 

It should be explained here that in the comparisons 
between the circulation and the metallic reserve of foreign 



39781°— II- 



-13 



191 



National Monetary Commission 

banks and Italian banks no account has been taken with 
regard to the latter of the part of the reserve which by 
legal provision was to be held as guaranty for the sight 
liabilities at the ratio of 40 per cent, and the whole reserve 
has been placed over against the total of the notes in 
circulation. It is a question here of an article of the 
Italian law which has no parallel in the banking laws 
of other countries, and which there is no occasion to con- 
sider in the comparative study of the metallic reserves 
and the circulation, because otherwise the terms of the 
comparison would need to be altered to the loss of 
Italy, and this would destroy the homogeneity necessary 
for an exact comparison. It is a question, in fact, of a 
legislative provision which can not alter the state of things 
which should be considered with a unified standard. Nor 
is it a valid objection that the sight liabilities of the Italian 
institutions for which the law requires a reserve of 40 per 
cent has no parallel in the foreign bank of issue, since they 
are composed almost wholly of negotiable paper of a kind 
that does not exist outside of Italy. To raise such an 
objection would be to conceal a question of substance 
behind a question of form. 

Now, the question of substance is that the foreign banks 
have, like the Italian ones, under the form of trans- 
fers or accounts current, debts that must be considered 
as a virtual supplementary circulation, which, on the 
demand of creditors, may increase the real circulation. 
If, therefore, a reserve is considered necessary against the 
sight liabilities of the Italian banks, a reserve should 
also be considered necessary against the other debts of 



192 



The Banks of Issue 



tn 



Italy 



the same banks and of foreign ones; or at least, since 
the ItaHan law is more severe on this point, it would be 
necessary in a comparative study, to leave out of account 
the terms of the law, or else extend, through analogy and 
homogeneity, the informing concept of it to foreign banks 
also. 

Given this standard, this is what the relation would be 
between the metallic reserves and the total of the active 
circulation, demand liabilities, and deposits in accounts 
current : 

[Expressed in million lire.] 





1894. 


1908. 




Circula- 
tion, de- 
mand lia- 
bilities, 
deposits. 


Metallic reserve. 


Circula- 
tion, de- 
mand lia- 
bilities, 
deposits. 


Metallic reserve. 




Total. 


Per 
cent. 

82 
66 
59 
52 
46 
37 
36 


Total. 


Per 

cent. 


Bank of France 


4,039- 7 
I, 894. 6 
1,095.4 
1,471.3 
490.4 
I, 191S 
I, 468.8 


3.311.5 
I, 256. 4 
644. 7 
817.4 
228.8 
0448. 6 
535-7 


5,882.0 
3.158.4 
2,369. 2 
2,095. 
877.6 
2.094. 7 
2, 187. 


4. ^71. 2 


74 


Imperial Bank of Germany 
Bank of Au.stria-Hungary . 

Bank of England 

Bank of Belgium 

Bank of Spain 


I, 176 

I, 612 

772 

343 

0900 

1,477 


I 
6 

I 
I 
c 

2 


37 
68 
37 
39 
42 


Italian banks 


67 











oThe amovmts of the metalic reserve for the Bank of Spain have been calculated 
according to Senor Besada's scheme referred to above. 

The Italian banks which figure in the last rank in 1894, 
with a percentage of 36, advance in 1908 to the third 
rank with a percentage of 67, against 74 for France and 
68 for Austria- Hungary. 

Now that we are on the point of concluding fortunately 
with the picture of an auspicious ending, the exposition 
of the perilous vicissitudes of the banks of issue in Italy, 
and of completing this sketch with a brief outline of the 



193 



National Monetary C ommis s to 



n 



principal points of the financial and economical progress 
of Italy during the fifteen years, in comparison with those of 
other countries, it should be stated that this outline is all 
the more necessary in that the new elements to be passed 
in review can not be considered foreign to those we have 
just examined; so close and intimate are the ties and so 
frequent the relations between all of these elements that 
it is very often hard to distinguish which of them are to be 
considered as causes and which as effects in the economic 
and financial vicissitudes of the country. 

And indeed, as for the increase of the metallic reserves 
of the banks, through which their note circulation has come 
to be increased in quantity and improved in quality, is 
it not due in part to the work of reconstruction of the 
banks, giving value to their notes, and in part to the 
greater and more profitable industrial and commercial 
activity of the country, enabling it to free itself in a 
monetary way from foreign markets ? And has not this 
same greater industrial and commercial expansion of the 
country been promoted or at least effectively helped by the 
banks of issue ? 

The industrial and commercial advancement of Italy 
is clearly shown by the table on page 195, in which is indi- 
cated the total of the international commercial imports and 
exports in each of the years from 1894 to 1908, in compari- 
son with that of other countries. 



194 



The Banks of Issue 



tn 



Italy 



[Expressed in million lire.] 



Year. 



Eng- 
land. 



Ger- 
many. 



France. 



1894 ; 15.693 

1895 I 16, 171 

1896 18,561 

1897 18. 737 

1898 18.787 

1899 20,397 

1900 21 , 956 

1901 I 21 , 906 

1902 22, 082 

I 
1903 ! 20, 975 

1904 I 21, 428 

1905 22, 509 

1906 j 22,585 

1907 ! 26, 961 

1908 24,395 



Difference between 1908 
and 1894 — per cent . . 



+ 55 



9, 200 

9.398 

9.846 

9, 960 

11-375 

11.576 

12,465 

12,851 

12.862 

13. 763 

14,457 

15.933 

17, 900 

19,325 
18,695 



+ 103 



6,928 
7,086 

7. 241 
7.675 
7.879 

8. 116 
8,486 
8,981 
8,652 
8.818 

9. 012 
9, 646 

10, 894 
12, 219 
II, 363 



4-64 



Aus- 
tria. 



3. 139 
3.087 
3. 179 
3, 221 

3.417 
3. 610 
3.820 

3. 770 
3.818 

4. 207 
4.320 
4, 609 

4. 791 
5.208 

5. 100 



Bel- 
gium. 



2,505 
3.065 

3. 244 
262 
580 
880 
917 
033 

4, 133 
4.414 
4,676 

5. 102 
S.566 

6, 243 
5. 958 



Italy. 



2, 121 
2, 225 
2. 232 
2, 283 

2, 617 
2,938 
3.038 
3.903 
3.248 
3.379 
3.473 

3, 721 
4.420 

4, 829 
4.889 



+ 62 +137 1 +130 



Spain. 



293 

347 
606 
718 
456 
66r 
586 
539 
563 
646 
718 
058 
912 
889 
,878 



+ 45 



Italy, as it is seen, comes directly after Belgium, with 
an increase of 130 per cent in the general movement of 
its commerce in comparison with 1894. 

The budget also presents satisfactory data during the 
fifteen years in spite of the ups and downs passed through 
by Italian finance. 

The table on page 196 sums up as a whole the aggregate 
results of the budgets and the movements of the public 
debts of the principal countries during the fifteen years. 



195 



National Monetary Commission 



Period from 1894 to igo8. 
[Expressed in million lire.] 



Italy 

England 

German Empire 

France 

Austria 

Hungary 



Expenditures. 



Total 

from 

1894 to 

1908. 



Surplus (— ) or 
Deficit (+). 



Total. 



Per 
cent. 



28,000 I— 630 —2.50 

I o I 

55, 500 ,+ 3, 500 +6.00 

37,000 :— 114 ; — .30 



54.000 
29, 500 
19, 800 



- 390 

- 400 

- 334 



70 



Public debt. 



Amount to- 



1894. 



12,453 
16, 750 
«2. 443 
31, 000 

13.473 



1908. 



12, 648 
17. 872 
as. 318 
32, 990 

16, 403 



Difference. 



Total. 



+ 195 
+ 1,122 

+ 2,875 
-f I. 990 

+ 2,930 



Per 
cent. 



+ 1.56 
+ 6.69 
+ 117.68 
+ 6.42 

+ 21.74 



o This is the debt of the German Empire. If one adds to this the aggregate of the debts of 
the various German states, it appears that the total German debt has increased from 12,183 
million lire, in 1894, to 21,218 million lire in 1908, or an increase of 74.16 per cent. 

It is apparent from these figures that Italy has had 
a total increase in the budget amounting to 630,000,000 
lire, equal to 2.50 per cent of the aggregate expenditure, 
having also included in the ordinary expenditures more 
than 300,000,000 lire in expenditures on railroads, whereas 
the public debt has increased by only 195,000,000 lire, 
equal to 1.56 per cent. 

The absolute increase may therefore be considered 
435,000,000 lire; to this, in order to give the terms of the 
comparison the necessary homogeneity, should be added 
the 300,000,000 lire expended on railroads; and thus, in 
comparison with the other countries, Italy presents an 
increase of 735,000,000 lire, without any addition to the 
debt. 



196 



The Banks of Issue in Italy 

Proceeding with the same method of rectification in 
respect to the other countries, bearing in mind that the 
increase of debts is generally due to the need of making 
up for financial expenditures, we shall have the following 
table : 



England 

German Empire . 

France 

Austria-Hungary 



Actual defi- 
cit in the 
fifteen 
years 
(millions). 




Per cent of 

debt to 

1894. 



6.69 

113- 01 

5.16 

16. 29 



All this confirms in a sufficiently eloquent manner the 
fact that Italy, even in regard to State finances, has ob- 
tained during the fifteen years results that seemed beyond 
all hope and that place it in the first rank for the impor- 
tance of the increase of returns and the small increase in 
the debt. One must consider, of course, with a compara- 
tive and proportioned standard the progress made in the 
fifteen years by the various countries, keeping in mind the 
different degree of economic and financial power of each 
of them and the possibility of richer countries being 
able to face financial deficits and bear the burden of an 
increased debt without its v/eighing too heavily upon their 
economic conditions. This, considering the degree of the 
pressure of taxation in relation to private wealth, and 
considering the weight of the burden of the debt, would 
be very difficult, if not entirely impossible, in Italy. 



197 



National Monetary Commission 

Therefore Italy should be given credit for the great 
merit of having grasped the gravity of the situation and 
its inherent dangers and of having avoided these dangers 
by improving the situation, thanks to intelligent, ener- 
getic, and enlightened action. 

As we have said above, the successive measures taken 
by the Honorables Sonnino and Luzzatti contributed to 
put Italian finance on the right road, and particularly the 
determination to cease from all issues of public securities, 
including those for building railroads, which are provided 
for by the ordinary resources of the budget. This determi- 
nation was called extreme and may still seem so to-day, 
unless one considers that Italy had abused debts beyond 
all measure of prudence and proportion, and the burden 
of these debts far surpassed that of other countries, taking 
into account the relative private wealth. Here is a state- 
ment of the situation in this regard in 1897: 

Sum total and cost of the public debt. 



Italy 

France 

England 

Germany 

Austria-Hungary 
Belgium 



Total 
(millions). 



13, 000 
31, 090 
16, 019 
IS. 767 
13.972 
2,328 



Per cent of 
private 
wealth. 



24.07 

13.80 

6.38 

7. 17 

16.25 

6.8s 



Cost 
(millions). 



703 
020 
625 
637 
653 
113 



Per cent of 
private 
wealth. 



• 30 
■45 

• 25 

• 29 
.76 
•33 



It will be helpful now to see what has happened since 
then in the matter of loans in Italy and the other coun- 
tries. The following table gives the total amount of obli- 
gations issued for the past eleven years, distinguishing 
those of the Government, the provinces, and the com- 



198 



The Banks of Issue in Italy 

munes and those of the banking, industrial, and railroad 
companies : 



Italy 

France 

England 

Germany 

Austri a- Hungary 

Belgium 

Spain 



Total issues 
(millions). 


State, pro- 
vincial, and 
communal 
issues. 




Per cent. 


I. 195 


13 


12.047 


18 


34.309 


35 


31.647 


37 


2,509 


47 


3.873 


44 


3.550 


58 



Banking, 

industrial, 

and railroad 

issues. 



Per cent. 



87 
82 

65 
63 

56 
42 



As may be seen, Italy during the past eleven years is 
the country that has had recourse to loans for relatively 
the smallest sum in comparison with other countries, and 
has had occasion to borrow only 155,300,000 lire on 
government, provincial, and communal obligations, and 
1,039,600,000 lire for issues of stocks and bonds for 
banking, industrial, commercial, and railroad companies. 
If one considers the small amount of the issues for the State 
and for companies, together with the regulation accom- 
plished of public finances and the economic progress of the 
country, eloquently proved by the figures of the move- 
ment of trade, it will be seen that Italy has been able to 
find within itself the strength to rise from the slough into 
which it had fallen, and has, by faithful and fruitful work, 
multiplied the productive capacity of its available capital. 

From the comparison of the progress of the various 
countries in the last fifteen years all the relative value of 
the progress of Italy does not appear, a value that can not 
fail to attain much greater importance if we consider that 
Italy was in 1894 in a very serious economic, financial, and 



199 



National Monetary Commission 

monetary condition, and was obliged from that time 
to devote a great part of its activity to curing the ills 
by which it was afflicted before being able to carry on 
the work of economic reconstruction; whereas, with the 
exception of Spain and England, which had to bear the 
expense of the wars in Cuba and the Transvaal, the 
other countries were able to continue quietly devoting 
themselves to their economic activity. 



200 



Chapter XVI. 



CONCI^USION. 



The satisfactory results obtained in every field, of 
which Italy is justly proud, would not, however, have 
been possible without the accompanying aid of all pro- 
pitious circumstances; unless, after framing suitable laws, 
gradually adapted to the modified conditions of the 
country and the banks, their administration had been 
scrupulously and profitably carried out; unless, while the 
banks were bent on improving their own situation, the 
State had done energetic, active, and vigorous work to 
establish finance upon a stable and durable footing; and, 
above all, unless the industriousness of the inhabitants 
and their powers of sacrifice and economy, reconstruct- 
ing and increasing the public riches, had efficiently aided 
the restoration of the banks, circulation, and finance; and 
indeed, if the Italian people, by the vigorous impulse given 
to industry, had not opened new avenues of trade; if they 
had not been aided by the upbuilding and compensatory 
elements represented by the industrious and economical 
emigrants who pour into the country plentiful remittances 
of money, and by the exploitation of the glories of history, 
art, and nature, that bring under its wonderful sky tourists 
from all quarters, it would not have been possible to change 
gradually the position of Italy from a debtor country to a 
country often creditor ; the wisdom and firmness of states- 
men and bank directors would not alone have been enough 
to perform the wonder. 



P 



OI 



National Monetary Commission 

For it is due precisely, in great part, to the fruitful 
industry of the Italian people that Italy, ceasing to be a 
debtor country, under monetary tribute to foreign coun- 
tries, has become a creditor country and has seen turned 
in its favor the economic and monetary balance, even to 
the point of receiving from abroad large sums of gold which 
have flowed into the banks of issue in exchange for notes. 
It is likewise due further to the accumulations of savings 
of the Italian people that a considerable part of the State 
securities, which had been owned abroad, has returned 
to Italy, so as to save the country henceforth, as we have 
already seen, from the violent and disturbing effect of 
the sudden return of securities to which debtor countries 
with abnormal finances and circulation are often exposed 
whenever the creditor markets are affected by a crisis or 
pressed by monetary difficulties. 

And indeed, whereas in the preceding crises of the 
international market, Italian exchange had to suffer con- 
siderable disturbances, the crisis of 1907 left it quiet in 
the neighborhood of par in spite of the fact that the home 
market, as we have seen, was also, for reasons peculiar 
to itself, gravely affected. 

On the other hand, it must be recognized that the efforts 
.of the Italian people would have given less results if they 
had not been ably aided in the work of economic recon- 
struction by the right direction given to the public finance 
and the regulation of the banks and circulation. 

As in the preceding period of difficulty and distress, so 
in the fortunate period of reconstruction it has been pos- 
sible to see that there is an intimate connection between 
the finances of a country and its economic conditions. 



202 



The Banks of Issue in Italy 

For this reason, in order to give to each in equitable meas- 
ure the merited share of praise, it should be recognized that 
all those who in the government and direction of the banks 
of issue helped to start finance and the circulation in the 
right path have acquired a high title to the gratitude of 
the country whose economic reconstruction they have 
efficiently aided. And among the men who succeeded 
each other in the Government we should mention with 
special honor the Honor ables Giolitti, lyuzzatti, and Son- 
nino, who in the field of finance and that of circulation 
have made an ineffaceable impress upon the history of 
modern Italy. 

The edifice of finance and credit auspiciously and 
solidly reconstructed, with such keenness of intellect and 
so much vigorous effort, must henceforth be considered 
as a sacred thing, over the safety of which Italy must 
keep watch with jealous care. This warning can hardl}^ 
seem superfluous if we consider that although there is 
reason to suppose that the severity of the law, the abil- 
ity and unanimity of the men placed in the manage- 
ment of the banks of issue, and the sad but salutary 
records of the past, will save Italy new banking crises; 
there is, on the other hand, reason to fear that the sound 
structure of finance may be shaken unless efficient and 
energetic action is brought to bear to repulse all the 
attacks to which, under every sort of pretext of the pub- 
lic interest, the Italian budget is exposed. 

This warning is all the more opportune if one reflects 
further that the passing of the management of the rail- 
roads to the State represents an unknown quantity that 
is not reassuring, and demands, meanwhile, an enormous 



203 



National Monetary Commission 

sum that will not be adequately remunerated by the 
railroad earnings — a sum that must be obtained by 
issues of special obligations; and also if one bears in 
mind that, as we have already seen, the national eco- 
nomic conditions are still disttirbed, especially in the 
Industrial field, by the errors committed by speculators 
in 1906 and by the results of the crisis that broke out in 
1907. 



204 



Statistical items on finance, circulation, credit, and trade in Italy from iSji to 1908. 

[In millions of lire.] 



1874. 
187s. 
1876. 



1907. 
1908. 



Not included 
in the total 
of circulation 



Loans to the state. 



Included in 
the total of 
circulation.' 



Total. Per 



39781° — II. (To face page 204.) 



* Consisting of state securities. 



Movement of trade. 



Italian rentes. 



65.35 
S8. 10 
58.95 



73.90 
79.55 
87.25 



85.5s 

First semester, 1884 

89. 43 1884-85 



t889-9< 



1S92-93 
1893-94 
1894-95 
1895-96 
1896-97 
1897-98 
1898-99 



93 


75 


1901-a 


99 


50 


1903-3 


01 


90 


1903-4 


98 




1904-S 


03 


55 


190S-6 
1906-7 


00 


70 


1907-8 


01 


67 


1908-9 



Effective 
debt of the 
state at the 

fiscal year. 



• 3 


— 




651 




680 




626 




662 




S07 


8 


731 


8 


797 


8 


818 


8 


837 


8 


896 


9 


506 



State circulation. 



.669 
.64S 



5 Consisting of specie. 



"IS 
"IS 
I- Bo 



The Italian Banks of Issue 



BY 

CARLO F. FERRARIS 

Professor in the University of Padua 



205 



THE ITALIAN BANKS OF ISSUE. 

[From Conrad's Handworterbuch der Staatswissenschaften, 3d edition] 

BY 

CARLO F. FERRARIS 

University of Padua 

Part I. — The hanks prior to i8g^. 

Page. 

I. The Banca Nazionale 207 

II. The extinct banks of issue 209 

III. The Bank of Naples and the Bank of Sicily 212 

IV. Bank legislation from 1866 to 1892 216 

Part II. — The hanks since iSgg. 

V. Causes of the new legislation 221 

VI. Character and administration of the banks of issue 225 

VII. The system of branch banks 231 

VIII. Capital of the banks of issue 233 

IX. The issue of bank notes 234 

X. Discounts, loans, deposits. — Drafts, checks, etc. — The rate of 

discount 242 

XI. The surplus 248 

XII. The banks in their relations to the State 250 

XIII. Statistics 254 

Part I.— THE BANKS PRIOR TO 1893. 

I. — The Banca Nazionale. 

The Sardinian Government in the year 1844 sanctioned 
the foundation in Genoa of a discount and deposit bank 
having the privilege of issuing notes, and a similar insti- 
tution in Turin was chartered in 1847. Each was to 
have a capital of 4,000,000 lire. Royal decrees of 1849 
and 1850 authorized the consolidation of the two banks 
into a single institution called the Banca Nazionale, with 
its seat in Genoa, with a capital of 8,000,000 lire, a 
monopoly of the issue of bank notes, and a chartered term 

39781"— II 14 207 



National Monetary Commission 

of existence of thirty years. In 1852 the capital was 
increased to 32,000,000 lire and the bank proceeded to 
establish branches. 

In 1859 the institution extended its operations to the 
newly liberated Lombardy. A new bank act was sanc- 
tioned by royal decree of October i, 1859, ^^^ ^^^ capital 
was increased to 40,000,000 lire. In 1861 two banks of 
issue, the Banca di Parma ^ and the Banca di Bologna 
(or Banca delle Quattro Legazioni) ^ were incorporated 
with it. At the same time new branches and sub- 
branches were opened in the Neapolitan and Sicilian 
provinces, and the institution assumed the title of Banca 
Nazionale nel Regno (National Bank in the Kingdom). 
In 1865 its capital was increased to 100,000,000 lire. A 
branch was at this time established in the new capi- 
tal of Italy, Florence, and later subbranches were opened 
in other cities of Tuscany. The same thing was done in 
1866-7 in the newly liberated Venetian provinces, and the 
institution absorbed another bank of issue, the Stabili- 
mento Mercantile Veneto, at Venice.^ Finally, in 1871 
headquarters were established at the new capital, Rome, 
and in 1872 the bank was authorized to increase its capi- 
tal to 200,000,000 lire, of which only 150,000,000 lire was 
paid in. 

Thus the little Sardinian bank, by the absorption of all 
other banks of issue in upper Italy and the establishment 

<^The Banca degli Stati Parmensi, at Parma, had a capital of 500,000 
lire, of which 300,000 was paid in. 

& The Banca delle Quattro Legazioni, at Bologna, had a capital of 
200,000 Roman scudi. 

cThis institution had a capital of 2,100,000 florins. It issued bank 
notes called cash certificates (buoni di cassa), whose average circulation was 
between i, 200 000 and 1,500,000 florins. 

208 



The Italian Banks of Issue 

of branches and subbranches in many important places 
throughout the country, rose to the position of the lead- 
ing credit institution in the kingdom. 

From 1885 it carried on a great mortgage business, a 
feature of which was the issue of debentures. 

II. — The Extinct Banks of Issue. 

BANCA NAZIONAI.E TOSCANA — BANCA TOSCANA DI CREDITO — 

BANCA ROMANA. 

The grand-ducal government of Tuscany established in 
18 16 a public discount bank, the capital of which was 
advanced by the State and which was invested with the 
privilege of issuing bank notes. After an existence of 
only ten years this bank was dissolved and was succeeded 
by a new discount bank (with its seat at Florence) , which 
had a capital of 1,000,000 Tuscan lire (afterwards increased 
to 1,250,000 lire) and had the right to issue notes, which 
were guaranteed by the Government up to three times 
the amount of the capital. A discount bank (joint-stock 
company) was established at Leghorn (Livorno) in 1837, 
with a capital of 2,000,000 Tuscan lire, which was author- 
ized to issue notes likewise up to three times the amount 
of its capital. In 1841 the Bank of Siena, a joint-stock 
bank, with a capital of 150,000 lire, was opened. It could 
issue notes up to the amount of its capital. In 1846 the 
Bank of Arezzo, a joint-stock bank, was established, 
with a capital of 120,000 Tuscan lire, up to which amount 
it had a right to issue notes. Then came the Bank of 
Pisa (1847), a joint-stock bank of issue, with a capital of 
150,000 lire, soon raised to 300,000 lire. Its circulation 
was restricted in the same way as in the case of the two 



209 



National Monetary Commission 

preceding institutions. In 1850 the Bank of Lucca was 
opened, with a capital of 299,666 Hre. It was authorized 
to issue notes up to twice the amount of its capital and 
was allowed to make them of very small denominations. 
Tuscany had now six banks of issue. There was no legal 
provision in regard to the mutual redemption of notes. 
In 1857 the two banks at Florence and Leghorn were 
consolidated. The new institution, which had a main 
office in each city, took the name of National Bank of 

Tuscany {Banca Nazionale Toscana). Its capital was 
fixed at 8,000,000 Tuscan lire and was to be increased by 
one-third of this amount every fifth year. The other 
banks of issue were permitted to change their status and 
convert themselves into branches of the newly constituted 
bank, and, in accordance with this provision, the banks 
of Siena, Pisa, Lucca, and Arezzo were merged in i860 
in the Banca Nazionale Toscana. The capital of this 
institution was now 9,410,000 Tuscan lire and was 
soon raised to 10,000,000 Hre. In 1864 it opened a sub- 
branch at Pistoja and in 1873 ^^^ ^^ Grosseto, and later 
other subbranches were established. The act of August 
18, 1870, prolonging the term of the bank's charter, author- 
ized the increase of its capital up to a maximum of 
50,000,000 lire. The administrative council of the bank, 
however, fixed the capital at only 30,000,000 lire, of 
which 21,000,000 lire was paid in. 

In March, i860, the provisional government in Tus- 
cany decreed the establishment of the Tuscan Credit 
Bank for the industry and trade of Italy (Banca Tos- 
cana di Credito per le Industrie e il commercio d' Italia). 
Its capital was supposed to be fixed at 40,000,000 lire 



210 



The Italian Banks of Issue 

but only 5,000,000 lire was paid in. This institution, in 
addition to all regular banking business, was authorized 
to issue cash certificates (buoni di cassa) up to three times 
the amount of the paid-in capital. It began business in 
1863. It was located at Florence and had no branches. 

A bank was established at Rome as early as 1833. 
After a rather inactive existence it was superseded in 
pursuance of a papal decree of 1850 by a larger institu- 
tion, the Bank of the Ponti^cal States {Banca dello Stato 
Pontifico)y which had branches at Bologna and Ancona. 
Its capital was to amount to 1,000,000 scudi (5,375,000 
Italian lire), but only 600,000 scudi was paid in when it 
was opened. This institution had the monopoly not 
merely of the issue of notes (in denominations of i, 10, 
20, 50, and 100 scudi), for which a one-third reserve 
was to be provided, but also of every kind of banking 
business. Its charter was to terminate in 188 1. The two 
branches were abolished in 1857 and were superseded by 
the Bank of the Four Legations (Banca dello Quattro. 
Lagazioni), which was merged in 186 1 in the Banca 
Nazionale nel Regno. The administration of the Banca 
dello Stato Pontifico was anything but a model one, so 
that in 1866 the papal government was compelled to offer 
its security for the bank notes. At the close of 1869 the 
circulation was 30,700,000 Italian lire and the reserve 
10,900,000 lire. 

When Rome became the capital of the Kingdom of 
Italy, in 1870, the notes of the bank were declared a legal 
tender in the province of Rome, and the institution was 
reconstituted under the name of the Roman Bank {Banca 
Romano). It renounced its monopoly in consideration 



211 



National Monetary Commission 

of a payment of 2,000,000 lire, other banks being per- 
mitted to establish branches at Rome. In 1874 it was 
authorized to increase its capital to 15,000,000 lire, which 
was all paid in. The Government at the same time 
ceased to guarantee the security of the notes. This bank 
did not make use of the privilege of establishing branches." 

III. — The Bank of Naples and the Bank of Sicily. 

From the second half of the sixteenth century there 
were large pawn banks in the Kingdom of Naples. At 
the time of the French Revolution the Bourbon Govern- 
ment seized their property in order to make use of the 
funds for carrying on the war against France. The 
French Government sought, by means of a law enacted 
in 1806, to retain one of the old banks — that of San Gia- 
como — for the service of the court and the Government 
and to establish a bank for the business of the people, 
and in 1808 it proceeded to create a single institution in 
place of the two — the Bank of the Two Sicilies. The 
necessary capital, however, was not forthcoming. Noth- 
ing came of a further attempt in 1809, but the restored 
Bourbon Government succeeded in bringing into existence, 
by decree of December 12, 18 16, the Bank of the Two 
Sicilies. This was a dual establishment — a court bank 
for the service of the Government, and a people's bank, 
which took deposits and loaned money on pledges. The 
former was dependent on the minister of finance and 
the latter was under the supervision of the Government. 
The employees in both cases were government officials. 
The scheme included also a discount bank as part of the 
establishment. This discount bank, which was opened 

« For later history see sections IV and V. 

212 



The Italian Banks of Issue 

in 1818 with capital advanced by the Government, was 
in reaHty nothing more than a department of the court 
bank. It was constantly involved in the financiering 
operations of the royal treasury. Although the Govern- 
ment acted rather arbitrarily in the matter of fixing 
the rate of discount, and was not always ready to 
comply with the provisions determining their status, 
these institutions enjoyed the confidence of the people 
in a high degree, and they were extensively utilized, 
all the more so as they were the only institutions of the 
kind in the country. A new department of the court 
bank was opened at Naples in 1824, designed to serve 
some special branches of governmental and local admin- 
istration. Private individuals were, however, also al- 
lowed to avail themselves of it, so that the distinction 
between the court bank and the people's bank prac- 
tically ceased to exist. A similar department of the 
court bank was established much later (1857) at Bari. 
The characteristic business of the Bank of the Two 
Sicilies, the feature that made it popular, was the de- 
posit business {servizio apodissario) . The certificates of 
credit {jedi di credito) were transferable by indorsement. 
They might be converted into a certificate for the purpose 
of making a succession of payments by means of cash 
orders, called **polizze," each payment being entered on 
the certificate, which thus served as a pass book, the deposi- 
tor having in this way an actual account current with the 
bank, of which he could avail himself in making payments 
to third parties. The certificates of credit, cash orders, 
and the orders for small amounts (polizzini) became a 
legal tender and were redeemable in coin at the tax offices. 



213 



National Monetary Commission 

They, as well as the drafts {Mandati) issued by the bank, 
served for making remittances, a quality which in those 
days of defective means of communication was very use- 
ful and highly appreciated. These instruments were 
therefore very extensively used in the Kingdom of Naples. 

The Italian Government reorganized the Bank of the 
Two Sicilies by a series of decrees between i860 and 1866. 
The institution, which was renamed the Bank of Naples, 
was deprived of its character as a state bank and was 
transformed into an independent credit corporation, hav- 
ing its own administration under the supervision of the 
Government. In 1866 the bank began to issue certificates 
of credit for a specific sum, transferable without indorse- 
ment and drawn on the cashier, which were in reality 
nothing else than bank notes. In the same year, the cur- 
rency in Italy having come down to a paper basis, the 
certificates of credit and the cash orders were declared a 
legal tender within the provinces of the former Kingdom 
of Naples. In the meanwhile the bank proceeded to 
establish branches, and it has since made extensive use of 
this privilege. The act of April 30, 1874, conferred upon 
the Bank of Naples the character of an actual bank of issue, 
although it carried on the business also of a pawn office, 
a savings bank, and a 'mortgage bank. Subsequently an 
agricultural credit department was added. A royal decree 
of September 23, 1874, assigned the sum of 48,750,000 
lire as a permanent fund for the issue of notes. 

In 1843 the Neapolitan Government had established 
a court bank at Palermo and another at Messina. They 
were dependencies of the Bank of Naples, which, at that 
time, as we have seen, was styled the Bank of the Two 



214 



The Italian Banks of Issue 

Sicilies. The revolution of 1848 severed the connection, 
and after the restoration of the Bourbon dynasty, in 1849, 
the separation of the Sicilian court banks from the Bank 
of the Two Sicilies was consummated. In 1850 the two 
banks were consolidated into a single institution, styled 
the Royal Bank of the King's Domain in Sicily {Banco 
Regio dei reali Domini at di Ih del Faro) . The institution 
was a bank of deposit for the Government and for the 
people. It had the same arrangements as the Bank of 
Naples in the matter of certificates of credit and cash 
orders, which were a legal tender. The banks served the 
needs of the financial administration of Palermo and Mes- 
sina. The royal domains in Sicily were mortgaged as 
security for the deposits. In 1858 two newly established 
discoimt banks at Palermo and Messina were afiiliated with 
the Banco Rigio. The events of i860 affected these institu- 
tions in a most serious manner, a large part of their prop- 
erty being taken for the purposes of war. The gradual 
restoration of the funds enabled them to resume banking 
operations, and in 1867 they were transformed into the 
existing Bank of Sicily (Banco di Sicilia), which is a 
public corporation and no longer a state institution. In 
1872 the bank was authorized to establish branches. 

In 1870 the Bank of Sicily began to issue actual bank 
notes in the shape of certificates of credit for a specific sum, 
drawn on the cashier and transferable without indorse- 
ment. The act of April 30, 1874, consumm.ated the con- 
version of the institution into an actual bank of issue, and 
in the same year a fund of 12,000,000 lire was assigned 
to it for its bank-note circulation. In 187 1 the bank 
instituted a realty credit department and in 1888 an 
agricultural credit department. 

215 



National Monetary Commission 

IV. — Bank Legisi^ation of the Period i 866-1 892. 

A royal decree of May i, 1866, rendered the notes of 
the Banca Nazionale nel Regno a forced currency. This 
institution at the same time made a loan of 250,000,000 
lire to the Government for the war that was to be waged 
against Austria. The other banks of issue (the Bank of 
Naples, the Bank of Sicily, and the two Tuscan banks) 
were authorized to continue the issue of certificates of 
credit, cash orders, cash certificates, and bank notes, and 
these instruments were to remain a legal tender; that is 
to say, they were to retain this quality in the provinces in 
which they had hitherto possessed it. They continued, 
however, to be redeemable in coin or the notes of the Banca 
Nazionale. Thus arose in the history of Italian banking 
the oft-recurring distinction between forced currency and 
legal-tender currency. 

The Banca Nazionale nel Regno had thus acquired an 
exceptional status, which it deserved to have, inasmuch 
as it had extended its network of branches and sub- 
branches over the entire Kingdom. At the close of 1873 
it had 790,000,000 lire in circulation on account of the 
Government (the indebtedness of the State to the bank 
having reached this sum) and 353,300,000 lire on its own 
account, and it had in addition loaned 39,500,000 lire to 
the other institutions, which had immobilized that 
amount of coin in their vaults. The aggregate amount 
of outstanding bank notes without forced circulation 
(including the notes of the Banca Romana, which had been 
incorporated in the Italian banking system in 1871), 
certificates of credit, and cash orders was at that time 
733>300»ooo lire. 

216 



The Italian Banks of Issue 

In spite of the presence of notes of very small denomi- 
nations (50 centesimi, i lira, 2 lire) up to an aggregate of 
101,300,000 lire, there was a considerable volume of 
legally unauthorized small notes in circulation that had 
since 1866 been taking the place of the silver fractional 
currency, which had disappeared. They were issued by 
friendly societies, communes, charitable institutions, sav- 
ings banks, people's banks, mercantile houses, and pri- 
vate individuals, and at the close of 1873 they amounted 
in the aggregate to 33,300,000 lire. The necessity of 
doing away with this abuse, a certain hostility in political 
and banking circles, as well as among business men, to- 
ward the privileges of the Banca Nazionale, and the 
need of regulating the issues of the Bank of Naples and 
of the Bank of Sicily on the same basis as the issues of 
the other institutions, brought about the legislation of 
April 30, 1874. This placed the Banca Nazionale and the 
five other banks on an equality as regards privileges and 
duties. All the six institutions were organized into an 
association (consorzio) , which had to put at the disposal 
of the Government, in place of the previous advances of 
the Banca Nazionale, i ,000,000,000 lire in so-called "associ- 
ation notes" issued in denominations ranging from 50 
centesimi to 1,000 lire. These association notes con- 
stituted, as irredeemable paper money (forced cur- 
rency) , the basis of the entire currency. The volume of 
notes outstanding on account of the State had reached, 
at the close of 1875, the sum of 940,000,000 lire, which 
was never exceeded, as the Government did not make 
full use of its right to an issue of i ,000,000,000 lire. The 
banks were allowed to issue their own notes, redeemable 
over the counter in association notes in denominations 



2x7 



National Monetary Commission 

ranging from 50 to 1,000 lire, up to three times their 
paid-in capital (in the case of the Banca Nazionale and the 
other three joint-stock banks) or of their fixed property 
(Bank of Naples and Bank of Sicily) on condition of 
keeping a one-third cash reserve against circulation in 
coin and association notes. Their metallic cash might 
be invested only in securities payable in coin. The bank 
notes were invested with the quality of a legal tender 
under certain restrictions. The issue of notes by private 
individuals and institutions of any kind was strictly for- 
bidden, and in a few years this mischievous currency was 
driven from circulation. 

The legislation of 188 1, with the provisions discontinu- 
ing forced currency, dissolved the association of the banks 
of issue. The coin obtained by means of a loan was used 
for withdrawing the association notes from circulation. At 
the same time the issue of 340,000,000 lire of treasury 
notes was decreed (100,000,000 lire in 5-lire notes and 
240,000,000 lire in lo-lire notes). First of all, the small 
notes of denominations up to 2 lire were replaced by frac- 
tional silver currency. The privilege of issuing notes was 
to terminate for all six banks at the close of 1889. The 
Government was empowered to authorize the banks to 
issue notes of the denomination of 20 or 25 lire, as it 
thought most expedient. The denomination was fixed by 
royal decree in 1883 at 25 lire. 

The forced currency was discontinued in 1883. The 
law of 188 1 provided that the reserve against bank note 
circulation should consist exclusively of coin. In pursu- 
ance of a royal decree of 1883 at least two-thirds of it had 
to be in gold. As a matter of fact, the treasury notes were 



218 



The Italian Banks of Issue 

placed on a par with gold and silver, as they were redeem- 
able in coin at any time on presentation at the main 
treasm'y of the Kingdom. The continuance of the legal- 
tender quality of the notes of the six banks of issue was 
extended by numerous successive enactments. The priv- 
ilege of issuing notes which, as we have seen, was to ter- 
minate at the close of 1889, was prolonged by a law of 1891 
to the close of 1892. 



219 



PART II.— THE BANKS SINCE 1893. 

V. — Causes of the New Legisi^ation. 

All who had been observing without political or doc- 
trinaire bias the course of government action in Italy with 
respect to the banks of issue had urged the necessity of 
thoroughgoing reform. The Italian system of banks of 
issue was a curious mixture of monopoly and plurality, 
which had all the disadvantages and none of the advan- 
tages of these systems. The competition of the six banks 
that had the exclusive privilege of issuing notes — institu- 
tions representing every grade of economic capacity — had 
led to an excessive issue of paper currency for the promo- 
tion of building speculation in the large cities (especially 
in the capital and in Naples) , for the support of industrial 
undertakings of an artificial nature and necessarily 
doomed to failure, as well as of ill-managed credit institu- 
tions, and for the purpose of influencing legislation by the 
lavish use of money. The institution which was economic- 
ally and morally most corrupt was the Banca Romana, 
which, ill conducted under the papal administration, had 
not had a sound existence under the national Government, 
and was the veritable poison of Italian credit. Its rotten- 
ness was fully revealed at the beginning of 1893 by an 
inquiry instituted at the instance of the Chamber of Depu- 
ties. Its suppression was inevitable, and as the condition 
of the other institutions was not a favorable one, Parlia- 
ment had to make up its mind to the discussion of a rather 



221 



National Monetary Commission 

radical reform, which was embodied in the act of August 
lo, 1893. 

This act provided for the fusion of the Banca Nazionale 
Toscana and the Banca Toscana di credito with the Banca 
Nazionale. The institution thus constituted took the name 
of the Bank of Italy. The affairs of the Banca Rom ana 
were to be wound up, and so there were left but three 
banks of issue — the Bank of Italy, the Bank of Naples, 
and the Bank of Sicily. The laws of 1894 and 1895 de- 
clared the two latter banks to be public autonomous 
credit institutions under the supervision of the Govern- 
ment, intrusted the liquidation of the affairs of the Banca 
Romana to the Bank of Italy, and amended the law 
of 1893 in important respects. In spite, however, of 
further statutory enactments (1895-96), the banks were 
unable to improve their condition materially. Their 
troubles were mainly due to two causes. A large amount 
of paper, which had been discounted for individuals 
and concerns ruined or temporarily embarrassed, re- 
mained unpaid, and the banks were obliged to take in 
place of what was due them a large quantity of securities 
and real estate. Furthermore, as they were not merely 
banks of issue, but also mortgage banks, they were com- 
pelled, by reason of the continuous and severe agricultural 
depression and the crisis in the building trade in some of 
the large cities (in particular, Rome), to dispossess many 
owners of lands and buildings, and thus to burden them- 
selves with a fresh mass of parcels of ground and houses. 
The mortgage business had indeed been delegated, in the 
case of each of these institutions, to an officially distinct 



222 



The Italian Banks of Issue 

administrative branch, but the regular banking depart- 
ment was constantly making fresh advances to this sepa- 
rate administrative branch on current account, and as 
these mortgage operations had been continually swal- 
lowing up new capital, the aggregate of the amounts thus 
advanced constituted a large sum to the credit of the 
banking department, on which it could not easily realize. 
In the case of the Bank of Naples, for example, an amount 
of money nearly equal to its entire free capital {patrimo- 
nio) had been gradually absorbed by the realty credit 
department, which, nevertheless, was on the verge of bank- 
ruptcy. These two categories of bad assets constituted in 
the balance sheets of the banks the so-called "immobilized 
assets" {partite immohilizzate) , and to this were added the 
legally no-longer-permissible assets acquired previous to 
the law of 1893. The principal aim of the fresh legislation 
of 1897 and 1898 was to remove the dangerous conse- 
quences of this untenable condition and to remedy it as fast 
and as far as possible. The previously initiated liquidation 
of the mortgage institutions connected with the three 
banks of issue was definitively sanctioned, and arrange- 
ments were made for effecting it with the least possible loss 
to the banks and the creditors. Every facility was afforded, 
also, for the liquidation, or, as it was termed, ''mobiliza- 
tion," of the "immobilized assets" that figured on the 
balance sheets, especially in the way of accommodations 
on the part of the fiscal administration and extensions in 
the matter of payments. 

In order to secure and facilitate the application of the 
new legislative injunctions, energetic men were placed at 



39781°— II 15 223 



National Monetary Commission 

the head of the institutions. The Government undertook 
the task of codifying most of the laws relating to the banks 
of issue, and the result was the legal code bearing the date 
of October 9, 1900. The duration of the legal-tender 
quality of the bank notes was extended year by year, and 
the lawmaker made constant use of the opportunities thus 
afforded in order to furnish fresh facilities to the banks for 
healing the wounds of the past. In the years 1 899-1 903 
further improvements were made in the statutes of the 
Bank of Italy and the provisions relating to the other 
two banks. 

The extraordinary development of industry, especially in 
upper and middle Italy, the strides made by commerce, and 
the progress in agriculture have in the last few years added 
greatly to the riches of the country. Emigration, although 
it has shown an unexpected and almost pathological in- 
crease, has afforded to the Italians permanently or tempo- 
rarily settled abroad the means of sending or bringing 
home large sums of money, while the expenditure of the 
ever-increasing number of foreigners visiting Italy has con- 
tributed an important item on the credit side in the inter- 
national balance of payments. In spite of the increased 
expenditure, the financial condition of the Kingdom has 
been considerably improved. The better credit of the 
State made it possible in 1906 to reduce the rate of interest 
on the public debt. This improvement in the economic 
and financial state of the Kingdom has naturally meant for 
the banks of issue a progressive development of their busi- 
ness and has afforded them the means of making a sounder 
selection in their transactions and of effecting more readily 



224 



The Italian Banks of Issue 

the liquidation of their immobiHzed assets. Great credit 
is due to the men at the head of these institutions, and we 
may point especially to the splendid manner in which the 
Bank of Italy weathered the financial crisis of 1907. 

In spite of the progress thus made, the moment had not 
yet arrived, in the opinion of our legislators, for removing 
the forced currency of the bank notes, and by the act of 
December 29, 1907, its duration was extended to the close 
of 1908. On the occasion of the enactment of this law 
important measures were framed (among them one raising 
the normal maximum of bank-note circulation) in order to 
make the legal provisions conform more closely to the 
present condition of the banks of issue and the economic 
and financial state of the country. These measures were 
embodied in the act of December 31 , 1907. By the act of 
December 24, 1908, the duration of the forced currency 
of the bank notes was extended to the close of 1909, and 
by the act of December 26, 1909, to the close of 19 10. A 
fresh revision of the statutes of the banks took place in 
1908 and 1909; the act of July 15, 1909, embodied pro- 
visions regarding interest-bearing deposits, and finally all 
the laws on the banks of issue (with exception of the act 
of August 8, 1895, Appendix Q, T.) were codified by the 
act of February 3, 19 10. 

VI. — Character and Administration of the Banks 

OF Issue. 

THE BANK OF ITALY. 

The Bank of Italy is a joint-stock company. The shares, 
which are registered, are nominally of 800 lire. Their 
nominal value was originally 1,000 lire, but they were 



225 



National Monetary C ommis s i o 



n 



reduced in 1894 to 900 lire and in 1897 to 800 lire. The 
amount actually paid in was 700 lire, but, as will be ex- 
plained later on, the paid-in capital is put down as having 
been only 600 lire per share. 

The central offices are at Rome. There are numerous 
branches, subbranches, "agencies," etc. 

At the head of the administration is the director-gen- 
eral, who is assisted by the vice-director-general. They 
are elected and retired by the superior council of the bank, 
but they have to be confirmed by the Government. 

The superior council (consiglio superiore) is elected in 
the following manner : The administrative council of each 
branch (sede) appoints two councillors from its midst. 
Five additional councillors are chosen by the general 
assembly of the shareholders from the midst of the remain- 
ing members of the administrative councils of the main 
offices or branches. 

The director-general is a member of the superior council. 
The vice-director-general may attend the meetings, but he 
has no vote unless he takes the place of the director-general 
when the latter happens to be absent. The superior coun- 
cil, among other important functions, appoints the 
employees of the bank on the initiative of the director- 
general. 

The directory (director-general and vice-director-gen- 
eral) and superior council carry on the general administra- 
tion of the bank. Their management is supervised by the 
syndics (sindaci) , who are chosen annually by the general 
assembly of the shareholders to the number of five. 

The regular meeting of the shareholders is held annually 
at Rome, and extraordinary meetings are held whenever 



336 



The Italian Banks of Issue 

it appears necessary, in conformity with certain statutory 
provisions. 

Each branch has a director, appointed by the superior 
council at the instance of the director - general, and 
an administrative council {consiglio di reggenza), com- 
posed of from seven to twelve (in exceptional cases, fotir- 
teen) councillors and of not more than four censors. The 
precise number of councillors and censors is fixed by the 
superior council. 

The councillors and censors are elected for a term of six 
years by the general assembly of the shareholders, which 
meets for that purpose at the various main offices. One- 
half retire every three years, the general assembly of the 
shareholders being therefore required to meet every third 
year at each of the main offices. Each branch has 
from eight to fifteen discount councillors (the precise 
nimiber being fixed by the superior council) elected for a 
term of two years, one-half retiring annually. They are 
chosen by the administrative council of the main office 
from a double list, indorsed by the director-general. The 
discount commission is composed of the director, two ad- 
ministrative councillors, and one discount councillor. 

Each subbranch (succursale) has a director appointed by 
the superior council at the instance of the director-general, 
several censors (as many as may be deemed necessary), 
appointed by the superior council and confirmed by the 
syndics, and from four to eight discount councillors, elected 
by the superior council for a term of two years, one-half 
retiring annually. The discount commission is composed 
of the director and two discount councillors. 



227 



National Monetary Commission 

Each agency (agenzia) is under the management of an 
agent, appointed by the superior council on the initiative 
of the director-general. 

THK BANK OF NAPLES. 

The Bank of Naples is an autonomous public credit 
institution under the supervision of the Government, hav- 
ing its own property or free capital. The central seat of 
administration is at Naples. 

It has a peculiarly constituted general council {consiglio 
generale). This is composed as follows: 

(a) The Neapolitan representation, consisting of the 
mayor of Naples, the presiding officer of the Council of 
the province of Naples, the president of the Neapolitan 
Chamber of Commerce, a delegate of the municipal Coun- 
cil of Naples, a delegate of the provincial Council, and a 
delegate of the Chamber of Commerce. 

(6) A delegate of the Council of the province of Bari 
and a delegate of the Chamber of Commerce of the city 
of Bari. 

(c) A delegate of the provincial Council of each of 
the following provinces: Aquila, Avellino, Benevento, 
Campobasso, Caserta, Catanzaro, Chieti, Cosenza, Foggia, 
lyccce, Potenza, Reggio-Calabria, Salerno, and Teramo. 

(d) A delegate from each of the chambers of commerce 
in the other provinces of the Kingdom in which the bank 
has a main office. 

{e) The director-general and the two administrative 
councillors appointed by the Government. 

The delegates are elected for a term of two years. The 
general council has its regular meeting at Naples once in 



228 



The Italian Banks of Issue 

the course of the first three months in each year, and may 
be convened again later in extraordinary session con- 
formably to special statutory provisions. Its functions 
correspond in the main to those of the general assembly 
of the shareholders of joint-stock banks. 

The managing body is the administrative council {con- 
siglio di dmministrazione) . This comprises the following 
members: The director-general, who is appointed by the 
Government (by royal decree) ; three ordinary delegates 
and one substituting delegate, who are chosen by the 
general council from its midst; and two administrative 
coiincillors, appointed by royal decree (one retiring each 
year), who are reeligible. The general secretary of the 
bank is appointed by the finance minister from a list of 
three persons submitted by the administrative council. 
The directors of each of the branches and of the sub- 
branches are appointed by the administrative council on 
the initiative of the director-general. 

Each branch and subbranch has from eight to twelve 
discount commissioners, appointed by the administrative 
council (which fixes the number) for one year on the initi- 
ative of the director- general. The discount commission 
consists of the director and two commissioners. 

The bank has a savings institution and a pawn office. 

THE BANK OF SICILY. 

The Bank of Sicily is an autonomous public credit 
institution under the supervision of the Government, 
having its own property or free capital. The central seat 
of administration is at Palermo. 



229 



National Monetary Commission 

It has, like the bank of Naples, a general council (con- 
siglio generate). This body is constituted as follows: 

(a) The representation of Palermo, consisting of the 
mayor of the city of Palermo, the presiding officer of the 
Council of the province of Palermo, the president of 
the Chamber of Commerce of Palermo, a delegate of the 
mtmicipal Council of Palermo, a delegate of the provincial 
Council, and a delegate of the Chamber of Commerce. 

(b) The mayors of Messina, Catania, and Girgenti, a 
delegate of the Chamber of Commerce of each of these 
cities, and a delegate of the Council of each of the prov- 
inces of Messina, Catania, and Girgenti. 

(c) A delegate of the Council of each of the provinces 
of Caltanissetta, Syracuse (Siracusa) , and Trapani. 

(d) A delegate from the Chamber of Commerce of each 
of the other provinces of the Kingdom in which the bank 
has established a main office. 

(e) The director-general and the two administrative 
coimcillors appointed by the Government. 

The delegates are elected every second year. 

The general council has its regular meeting at Palermo 
once in the course of the first three months in each year 
and may be convened again later in extraordinary session, 
conformably to special statutory provisions. Its func- 
tions, as is the case 'with the Bank of Naples, correspond, 
in the main, to those of the general assembly of the share- 
holders of joint-stock banks. 

With respect to its administrative personnel, the Bank 
of Sicily is organized in the same manner as the Bank of 
Naples. It has an agricultural credit department and a 
savings bank 



230 



The Italian Banks of Issue 

VII. — The System of Branch Banks. 

The banks of issue are permitted to maintain branches, 
sub-branches, and agencies, to have correspondents, and 
to make use of banking houses as their representatives in 
the redemption of their notes. 

The branches {sedi) are those offices which are located 
in the principal cities or which have the largest volume 
of business. These two conditions usually coincide. The 
banks are obliged to maintain a main office at the capital. 

The agencies (agenzie) are those offices which have 
been established by the bank at its own expense and are 
managed by its own officials, and whose business it is 
to collect bills, to cash the drafts of the bank and the 
negotiable paper so-called (yaglia camhiari) , and to redeem 
its notes. 

The Bank of Italy is obliged to maintain a branch 
or a subbranch at the capital of each of the 69 prov- 
inces. It may establish sub-branches in other cities also, 
and it has done this to some extent. In the establishment 
and abolition of branches and subbranches and in the 
transformation of sub -branches into agencies the action 
of the bank requires the sanction of the Government, 
which is given simply in the form of a ministerial order. 
In the establishment and suppression of the agencies the 
action of the bank is untrammeled. 

The Bank of Naples and the Bank of Sicily are at liberty 
to abolish the existing branches and sub -branches or to 
establish new ones in the capitals of the provinces, but 
the establishment and suppression of such branches can 
be effected onlv bv royal decree, at the instance of the 



231 



National Monetary Commission 

administrative council with the consent of the general 
council. In the case of the agencies an order of the 
finance minister is required in place of a royal decree. 

The correspondents are the credit institutions and 
private banks which collect bills and cash drafts, etc., for 
account of the banks of issue. 

These credit institutions and private banks, as well as 
the savings banks (as a general thing, in the larger 
cities) , may, on due notice being given to the Government, 
be charged by the banks of issue with the redemption of 
their notes. They are invested by the bank of issue with 
the power of ''representation for redemption" {rappre- 
sentanza pel cambio). This takes place usually in those 
provinces in which the bank of issue has no offices of its 
own belonging to any one of the three categories above 
mentioned. In such cases the bank selects a representa- 
tive, whose place of business is generally the capital of 
the province. The bank may, however, have several 
representatives in the same province. The banks of issue 
may perform mutual services in respect of the redemption 
of their notes. The Bank of Naples, for example, repre- 
sents the Bank of Sicily at a number of places. 

The following table gives the statistics of the branch 
offices, etc., of the banks of issue. The figures are for 
the end of September, 1909. 



Bank. 


Branches 
(sedi). 


Sub-branches 
(succursali). 


Agencies 
(agenzie) . 


Representa- 
tives for the 
redemption 

of notes 

(rappresen- 

tanze pel 

cambio). 


Bank of Italy- 


II 

12 

7 


69 

4 


22 
10 
21 




Bank of Naples 


35 


Bank of Sicily 


69 







232 



The Italian Banks of Issue 

There are a great many correspondents, each of the 
banks having hundreds. They are to be found even in 
very small places, and their number is constantly increasing 
with the foundation of new cooperative credit associations, 
regular credit associations, and private banks. 

VIII. — Capitai^ of the Banks of Issue. 

The Bank of Italy (joint-stock bank) has a nominal 
capital of 240,000,000 lire, the paid-in capital being 
180,000,000 lire. The Bank of Naples and the Bank of 
Sicily (public credit institutions) have a fixed property 
amoimting, respectively, to 50,000,000 and 12,000,000 lire. 

The nominal capital of the Bank of Italy is divided into 
300,000 shares. The paid-in capital amounts actually to 
210,000,000 lire; that is to say, 700 lire was paid in for each 
share. But in order to make it possible to devote a larger 
quota of the net earnings to the improvement of the condi- 
tion of the bank, which had been seriously compromised by 
the unsound management to which we have referred, this 
paid-in capital was reduced on the books by 30,000,000 
lire, so as to be reckoned at only 180,000,000 lire; that is to 
say, the amount paid in for each share is considered to 
have been 600 lire instead of 700. It was arranged, how- 
ever, that the bank, after the expiration of an interval of 
not less than fifteen years, beginning with 1893, if it had 
fulfilled its legal obligations, would be empowered to restore 
those 30,000,000 lire to its shareholders in annual quotas 
not exceeding 6,000,000 lire. But w^hen the time arrived 
(1909), it was considered best not to turn over the sum 
that was available to the shareholders but to devote it to 
an extraordinary reserve fund. (See section XI). 



233 



National Monetary C ommi s s io 



n 



As the Bank of Naples and the Bank of Sicily had like- 
wise invested part of their funds in insecure loans and 
unsafe mortgage operations, and as the figures given above 
originally represented in part not actually existing property 
but merely the amount due the banking department by 
the realty credit department, it was provided that these 
two banks should for a term of fifteen years, beginning with 
1893, add all their net earnings to their free capital 

except what was required to meet their legal obligations, 
and this is what was actually done. 

IX. — The Issue of Bank Notes. 

The three institutions which we have here described have 
the exclusive right to issue bank notes, the privilege having 
been conferred for a period of twenty years, 1 893-1913, 
with a conditional extension for ten years. 

The chief function of the banks is to issue notes for the 
needs of trade. The so-called "normal maximum limit" 
of the issue is fixed for the respective institutions as 
follows : 

Lire. 

Bank of Italy 660, 000, 000 

Bank of Naples 200, 000, 000 

Bank of Sicily 48, 000, 000 

Total . 908, 000, 000 

The Bank of Sicily is empowered to issue an additional 
10,000,000 lire, which amount, however, has to be devoted 
to the assistance of the sulphur industry. 

The cash reserve has to be not less than 40 per cent of 
the amount of the outstanding notes. The banks are, 
however, allowed to exceed the normal maximum limits 
under the following conditions : 



234 



The Italian Banks of Issue 

(a) They may issue up to any amount, provided there 
is a cash reserve against the full amount of the excess 
above the normal maximum. 

(b) They may exceed the normal maximum, provided 
there is a 40 per cent covering for the entire issue, on 
condition of the payment of a special tax on circulation, 
which is levied only on the excess. This tax is one- 
third of the rate of discount when the excess is not more 
than 50,000,000 lire in the case of the Bank of Italy, 
15,000,000 lire in that of the Bank of Naples, and 4,000,- 
000 lire in that of the Bank of Sicily. It is two-thirds 
of the rate of discount when the excess is not less than 
50,000,000 lire and not more than 100,000,000 lire for 
the Bank of Italy, between 15,000,000 and 30,000,000 
lire for the Bank of Naples, and between 4,000,000 and 
8,000,000 lire for the Bank of Sicily. It is equal to the 
full rate of discount when the excess is, respectively, 
between 100,000,000 and 150,000,000 lire, between 30,- 
000,000 and 45,000,000 lire, and between 8,000,000 and 
12,000,000 lire. 

When the excess is above 150,000,000, 45,000,000, and 
12,000,000 lire, respectively, an extraordinary tax of 7^ 
per cent is levied on the additional amount over and 
above these figures. This extraordinary tax is also im- 
posed in case the entire 40 per cent cover is not pro- 
vided, even when the normal maximum limit is not ex- 
ceeded. It must be borne in mind that so much of the 
circulation as corresponds to the cash cover is not taxed. 

It has been sought in this way to maintain the neces- 
sary elasticity of the bank-note circulation and to prevent 



235 



National Monetary Commission 

the danger of an excessive issue for the purposes of spec- 
ulation. 

As the banks are under the obligation to make ad- 
vances to the State (at the present time, up to the sum 
of 125,000,000 lire), the corresponding issue of notes is 
not included in the normal maximum issue, and a cash 
cover of only one-third is required. 

The cash cover, or metallic reserve, must consist, up 
to at least three-fourths, of gold coin or gold bullion, 
and the remaining one-fourth must be made up of coins 
of the Latin League nine-tenths fine and of subsidiary silver 
currency (this last not to exceed 2 per cent of the total 
reserve) . In place of metal, however, the following securi- 
ties, payable in gold or in silver coin of the Latin League 
(nine-tenths fine) may be partially substituted: Foreign 
bills of exchange; foreign treasury bills; certificates of 
sums deposited in current account in foreign banks. The 
quota of such substituted funds shall not exceed 11 
per cent of the total cash reserve in the case of the Bank 
of Italy, 15 per cent in that of the Bank of Naples, and 
15 per cent in that of the Bank of Sicily. It is further 
provided that the above-mentioned certificates of deposit 
shall never exceed 3^ per cent of the legal circulation. 

The cash cover, or metallic reserve, must under no 
circumstances be allowed to fall below the following 
figures : 

Lire 

Bank of Italy 400, 000, 000 

Bank of Naples 120, 000, 000 

Bank of Sicily 28, 000, 000 

This metallic reserve must be kept absolutely separate 
from the other assets of the bank, and the State is to 
exercise a special supervision over its maintenance. 

236 



The Italian Banks of Issue 

This reserve guarantees the bank notes, but inasmuch as 
the holders of these notes can in no way derive any 
benefit from it because there can be no redemption out 
of this reserve, either at present or in future time, 
as will be explained later on, they have been accorded 
a preferred claim over the following assets of the bank : 
The gold coin, gold bullion, and legal silver coin in 
the possession of the bank not included in the above- 
mentioned minimum metallic reserve nor set aside as 
a reserve against sight liabilities; the Italian treasury 
bills acquired by the banks and other securities issued by 
the Italian Government or guaranteed by it ; the foreign 
bills not reckoned as part of the metallic reserve; stuns 
due to the bank on account of loans on collateral and 
secured by such collateral, including sums due from the 
Government on account of advances and guaranteed by 
securities deposited by the Government; domestic bills of 
exchange as much as may be needed to make up the 
required sum. 

The following will serve as an illustration: 
The Bank of Italy had on September 30, 1909, a total 
circulation of 1,467,167,300 lire. Up to the sum of 
400,000,000 lire these bank notes were secured by this 
minimum metallic reserve. There remained, therefore, 
1,067,167,300 lire. For this there was the following 
security : 

Lire. 

Gold and legal silver coin 689, 194, 527 

Italian treasury bills and other government obligations or 

securities guaranteed by the Government 214, 137, 718 

Foreign bills of exchange i, 838, 090 

Sums due on account of loans 78, 953, 004 

Domestic bills of exchange 83,043, 961 

Total _ 1,067, 167,300 



237 



National .Monetary Commission 

These 1,067,000,000 lire represent the assets in regard 
to which the holders of the notes had the above-mentioned 
preference on September 30, 1909. Of course, as has been 
seen, the above-mentioned 400,000,000 lire of the metallic 
reserve are a security for the notes, but it is certain that 
the actual circulation of the Bank of Italy in peaceful times 
will never sink below 400,000,000 lire, and consequently 
these 400,000,000 lire of bank notes will never be presented 
for redemption, even if there should be a redemption of 
notes. In case of war the Government will appropriate 
this metallic reserve and make forced currency out of a 
corresponding amount of bank notes. 

The banks are not obliged to redeem their notes so long 
as the treasury notes are irredeemable. They may, if 
they choose, redeem them in treasury notes (as is usually 
done) , or they may, if they so desire, redeem them in coin, 
making use of the metallic money which they may have 
on hand over and above the minimum reserve, but in 
that case they have the right to exact from the holder of 
the notes the premium on coin set on that day at the 
nearest exchange. 

The treasury notes are issued in denominations of 5, 
10, and 25 lire, but the 25-lire notes are now being with- 
drawn from circulation. The total issue is not permitted 
to exceed the sum of 465 ,000,000 lire. The total of the out- 
standing notes on September 30, 1909, was 433,61 1,895 lire. 
This national paper money is irredeemable ; it is a currency 
with forced circulation. There is, however, a guaranty 
fund, consisting of a gold reserve that may not be touched, 
which must not be less than 151,250,000 lire. It has 



238 



The Italian B 



a n 



of I 



s s u e 



recently exceeded this sum, having amounted on Sep- 
tember 30, 1909, to 175,175,805 lire. 

The notes of the banks are restricted to the denomina- 
tions of 50, 100, 500, and 1,000 lire. 

The aggregate of the outstanding notes of these legal 
denominations on September 30, 1909, was as follows: 



Denominations. 


Lire. 


Per cent. 


1,000 lire 


271, 138, 000 
307, 888, 000 
730,381, 800 
630, 816, 600 


13-98 

IS- 87 


500 lire 




6 


100 lire - - 


37-64 
32.51 


50 lire _ 










Total 


1,940, 224, 400 


100. DO 







At the same date the three banks of issue held notes to 
the aggregate amount of 709,400,000 lire. 

The form of the notes in each denomination is pre- 
scribed by an ordinance of the minister of finance, as well 
as the number of notes that may be turned out at each 
printing. The manufacture of notes and the destruction 
of old or mutilated ones are carried on under the constant 
supervision of the finance minister. The manufacture is 
so arranged that no bank note can be turned out complete 
without the participation of the bank of issue and the 
Government in the operation. The notes that are not 
placed at the disposal of the banks are kept in a special 
treasury, and every withdrawal of notes from this treasury 
for the sake of putting them in circulation, as well as 
every deposit of notes not required for circulation, must 
be effected under the supervision of the state inspectors. 



3978i°~ii 16 



239 



National Monetary Commission 

THE IvEGAIv-TENDER QUALITY OF THE BANK NOTES AND 
THEIR MUTUAI^ REDEMPTION AMONG THE BANKS OF 
ISSUE. — DURATION OF THE PRIVIIvEGE OF ISSUE. 

Bank notes are a legal tender, that is to say, they are a 
legal tender in those provinces in which the bank has 
either a branch (sede), a subbranch (succursale) , or an 
agency (agenzia), or else a representative charged with 
the redemption of the notes. 

At the present time the notes of all three banks of issue 
are a legal tender throughout the whole kingdom. 

By means of a voluntary agreement, which has to be 
sanctioned by the Government, each of these institutions 
may bind itself to put again in circulation the notes of 
another institution in making its payments. 

Inasmuch, however, as, in accordance with the law and 
by reason of the legal-tender quality, each institution is 
obliged to accept the notes of either of the other institu- 
tions, and as, in case one institution makes use in its pay- 
ments of the notes of another, a certain amount of such 
notes may remain in its treasury, it has been found neces- 
sary to regulate the mutual redemption of notes (the 
so-called " riscontrata ") between the banks of issue. This 
duty was legally reserved for the Government, which has 
issued the following regulations : 

On the loth, 20th, and last day of each month one 
bank informs the other of the amount of the notes and 
other sight paper (as, for example, drafts) of that other 
institution it has in its possession. After the lapse of five 
days from the date of this communication the latter (the 
debtor bank) has the right to take back its own notes, 



240 



The Italian Banks of Issue 

drafts, etc., in exchange for the notes, drafts, etc., of the 
former (the creditor bank) and other instruments that 
may legally serve for redemption, as, for example, national 
paper currency or coin. If it is not in a position to get 
back all its notes and other sight instruments in this man- 
ner, part remains in the hands of the creditor bank, which 
charges the amount to the debtor bank in a special account 
current, and may demand interest at a rate not exceeding 
three-fifths of the official rate of discount. The liquida- 
tion of the account is effected at the end of June and at the 
end of December of each year. 

So long as the bank notes continue to be legal tender 
the debtor bank can not be compelled in the exchange of 
the notes and the liquidation of the account current to 
hand in, in addition to the notes of the creditor bank, an 
amount of other instruments, that may legally serve for 
redemption, in excess of one-twentieth of its legally per- 
mitted circulation. The debtor bank is allowed to dis- 
charge the remainder of its obHgations with bills of ex- 
change having no more than fifteen days to run and with 
government bonds. 

But inasmuch as all payments into and from the 
national treasury throughout the Kingdom are made 
through the Bank of Italy, and as this institution therefore 
accumulates a large volume ot notes of the other two 
banks that have been used in the payment of taxes, a pro- 
vision has been enacted in favor of these institutions, lim- 
iting the amount which they may be called upon to take 
back to the volume of the notes of the Bank of Italy which 
they happen to have in their possession. 



241 



National Monetary Commission 

The duration of the legal-tender quality of the bank 
notes is to terminate at the close of 1910 but a further 
prolongation is anticipated. 

Those of the institutions which at the expiration of the 
twenty-year privilege of the issue of bank notes (August 
10, 19 1 3) will have fully discharged their legal obligations 
will have the privilege extended to the close of 1923. Two 
years before the expiration of the present terra the con- 
dition of the banks is to be investigated by a commission, 
which shall ascertain whether it is such as to satisfy in 
every way the legal requirements with respect to the pro- 
longation of the privilege. This commission shall be com- 
posed of two members chosen by the Senate and two by 
the Chamber of Deputies and of three members appointed 
by decree of the Government with the approval of the 
cabinet. 

X. — Discounts, Loans, Deposits. — Drafts, Checks, 
ETC. — The Rate of Discount. 

In addition to the issuing of notes, the banks of issue 
are allowed to engage in the following kinds of business: 

(a) The discounting of bills and checks having no 
more than four months to run and bearing at least two 
signatures, treasury bills, warrants of the public ware- 
houses, and coupons of the securities on which loans may 
be made. 

(6) The making of advances for a term not exceed- 
ing four or six months (according to the nature of the 
securities furnished as collateral) on government bonds, 



242 



The Italian Banks of Issue 

treasury bills, ° and securities guaranteed by the State, 
on debentures of realty credit banks, securities issued 
or guaranteed by foreign governments and payable in 
gold, on gold and silver coin, on silk, on orders for 
merchandise (obligations to deliver a certain quantity 
of a particular kind of goods at a specified date), on 
warrants of the public warehouses, etc. The loans on 
securities may, according to the nature of the collateral, 
represent either the full nominal value or a fraction 
thereof — nine-tenths, four-fifths, three-fourths, two-thirds, 
or one-half. 

(c) The purchase and sale of foreign bills and drafts 
payable in gold with at least two good signatures and 
having three months to run at the utmost, as well as 
the issue of drafts on foreign countries. But as such 
business serves mainly for the accumulation of coin for 
the reserve and for effecting the monetary transactions 
of the Government, the banks are permitted to engage 
in it only to the extent that it is necessary for such pur- 
poses. In any case the aggregate amount involved in it, 
as well as in foreign accounts current, is not, as a regular 
thing, to exceed the twentieth part of the maximum per- 
missible note circulation. A temporary excess may be 
authorized or a contraction decreed by the finance min- 
ister if the note circulation with 40 per cent reserve 
exceeds the normal maximum circulation or if the state 
of the foreign exchanges seems to call for it. 

All other property, immovable as well as movable, es- 
pecially such as the banks may acquire in the payment 

« If these have a very long time to run, the term of the loan may be 
prolonged to as much as two years. 



243 



National Monetary Commission 

of debts, is to be sold within two years. The banks are, 
however, permitted to invest such of their available re- 
sources as are not to go to the surplus in government 
bonds or in securities guaranteed by the State. The 
amount of such investments shall not exceed 75,000,000 
for the Bank of Italy, 30,000,000 for the Bank of Naples, 
and 8,000,000 for the Bank of Sicily. Some special laws, 
however, have excluded from this restriction certain gov- 
ernment securities and the securities of several mortgage 
and agricultural credit institutions. 

The banks are not permitted to have any part of their 
assets in accounts current without security or to make 
loans on real estate. As was stated above, the affairs of 
the realty credit institutions connected with the banks 
of issue are being wound up. 

The banks are permitted to take current-account de- 
posits and pay interest on them. When the amount of 
these deposits exceeds 200,000,000 lire in the case of the 
Bank of Italy, 80,000,000 in that of the Bank of Naples, 
and 25,000,000 in that of the Bank of Sicily, the bank-note 
circulation shall be reduced, the amount of the reduction 
being one-third of the amount by which the deposits ex- 
ceed these limits. The rate of interest shall not exceed 
one-third of the rate of discount. The finance minister 
may, however, authorize the banks to allow a higher rate, 
which shall not exceed thr^e -fourths of the rate of interest 
allowed on deposits in the postal savings banks. 

The banks also receive simple non-interest-bearing de- 
posits, and may draw banking assignments on foreign 
banking institutions for their own account or for account 
of a third party, issue, etc. . 



244 



The Italian Banks of Issue 

An interesting feature of the business of these institu- 
tions is the issue of certificates of deposit having the char- 
acter of negotiable paper {vaglia cambiari), which are 
extensively used, lending themselves especially to the 
transfer of sums from one place to another. They are 
made out for the depositor for any amount he may desire, 
and are made payable to him or to a third party desig- 
nated by him. They may be transferred from one holder 
to another by a simple signature or by indorsement. 
Such drafts are payable at every branch or subbranch 
of the bank or at the office of any correspondent and 
cease to be valid only at the expiration of five years. 

Mention should be made of the following instruments 
issued by the Bank of Naples and the Bank of Sicily as 
certificates of interest-bearing and non-interest-bearing 
deposits : 

(a) Certificate of credit. This is handed out to a de- 
positor on his being credited with a deposit of at least 50 
fire and is transferable by signature or indorsement. 

(6) Small cash order. This is a certificate of credit 
issued for a sum of less than 50 lire. It is made out by 
the depositor himself and certified by the bank and is 
transferable in the same way as the preceding. 

(c) Cash order noted in fede. If the depositor wishes to 
make use of the sum certified in the certificate of credit 
for making several successive payments, the document is 
converted into one that is not transferable, a madre-fede, 
which assumes the character of a pass book. The instru- 
ment which the depositor makes out in order to dispose of 
part of his credit balance is presented with the madre-fede 



24s 



National Monetary Commission 

and certified by the bank and is known as a cash order 
noted in fede because of the entry that has to be made 
on the madre-fede. The cash order (polizza) is transfer- 
able in the same way as the certificate of credit. 

The Bank of Naples has authorized its correspondents 
to draw banking assignments upon it up to an aggregate 
sum previously agreed upon, for which security is fur- 
nished. They are payable at every branch and sub- 
branch of the bank, but must be presented for payment 
within fifteen days. This shorter term distinguishes this 
instrument from the above-mentioned negotiable paper. 

The Bank of Italy has also authorized its correspond- 
ents under like conditions to make out such banking 
assignments, but they are to be drawn only upon a speci- 
fied branch or subbranch and they must be presented 
within a specified short time. This instrument is there- 
fore distinguished from the above-mentioned draft in a 
double manner — by being made payable at a specified 
place and within a short time. 

All demand liabilities are to be covered by a cash 
reserve amounting to 40 per cent of their aggregate 
amount. The composition of this reserve shall be the 
same as that of the reserve against bank-note circulation. 

In order to prevent the abuses of former times the Gov- 
ernment was empowered to make agreements with the 
three institutions and to prescribe uniform norms for the 
compilation of the lists of individuals and firms to whom 
credit is granted (the maximum amount being entered), 
for the mutual exchange of these lists or the partial com- 
munication of their contents, for the choice of corre- 
spondents, etc. 



246 



The Italian Banks of Issue 

The institutions receive for safekeeping (or in trust) 
securities, objects made of the precious metals, and money 
for account of the Government, individuals, and stock 
companies (first installment of the capital paid in at the 
organization).* 

The institutions may, conformably with the norms 
prescribed by royal decree, establish and operate clearing 
houses (stanze di compensazione) . This has been done 
in some of the large cities (Florence, Genoa, Milan, Na- 
ples, Rome, Turin). 

So long as the bank notes are legal tender, the normal 
rate of discount, as well as the rate of interest on loans, 
must be the same for all the banks of issue, and they 
can not be altered without the sanction of the Govern- 
ment. The Government is empowered to institute a 
change simultaneously for all three institutions. These 
are permitted, however, in certain cases to lower the 
rate of discount, although by not more than i per cent. 
They may do so in the case of loans to people's banks, 
agricultural loan institutions, banks established for the 
promotion of the mining industry, and discount banks 
that fulfill certain legal requirements, such as the promo- 
tion of the retail trade and the discounting of the war- 
rants of the public warehouses. They are empowered 
to do the same in the discounting of warrants issued by 
the public warehouses against deposits of silk, sulphur, 
and lemons and oranges and preparations made from 
them. This discount is termed '' sconto di favore " or pref- 
erential rate. The aggregate sum applicable to such 
transactions is limited to 100,000,000 lire for the Bank of 
Italy, 30,000,000 for the Bank of Naples, and 9,000,000 
for the Bank of Sicily. 



247 



National Monetary Commission 

In addition to this, when the aggregate circulation of 
notes is below the normal maximum, the banks of issue 
are allowed to discount below the normal rate the prom- 
issory notes of mercantile firms and banking houses of 
the first rank which have not over three rfionths to run. 
This is termed sconto a saggio ridotto or reduced rate dis- 
count. It is not permitted to fall below 3 per cent. 
Changes in the rate are to be made according to the state 
of the market on the application of the banks by decree 
of the minister of finance. This reduced rate can not be 
legally obtained in the case of the renewal of promissory 
notes in whole or in part, or in the case of promissory 
notes put forth for the liquidation of debts created by 
previous notes. The decisions of the discount commission 
in regard to these promissory notes must be by an abso- 
lute majority of the members, and a special bookkeeping 
has to be provided for this business. The notes thus 
discounted must be kept in a special portfolio, so that 
they shall be absolutely apart not only from the notes 
discounted at the normal rate, but also from the "pref- 
erence" notes of the people's banks, agricultural loan 
institutions, etc., in order that they may be under the 
special supervision of the Government. 

There are thus three rates of discount — the normal or 
official rate, the preferential rate {sconto di favor e) and the 
reduced rate {sconto a saggio ridotto) . 

XI. — The SURPI.US (FoNDO di Riserva, Massa di 

RiSPETTO) . 

In the case of the Bank of Italy the surplus is to be 
equal to one-fifth of the nominal capital. It is consti- 
tuted by setting aside one-twentieth of the yearly net 

248 



The Italian Banks of Issue 

earnings. When the yearly net earnings exceed 5 per 
cent of the paid-in capital, 20 per cent of such excess is 
taken and assigned to the surplus. 

When the amount of the surplus shall in this manner 
have attained to the legal requirement, the general assem- 
bly of the shareholders may resolve that an additional 
part of the net earnings shall be set aside for the accumu- 
lation of special surplus funds for particular purposes. 
The funds thus constituted (a part of the surplus is still set 
aside as security for the operations of the mortgage depart- 
ment, now in process of liquidation) are invested in gov- 
ernment obligations or in securities guaranteed by the 
Government. 

An ' ' extraordinary stuplus ' ' {riserva straor dinar ia) was 
constituted out of the profits realized in the liquidation of 
the *' immobilized assets " and the sums that had been set 
aside for the purpose of covering any incidental losses that 
might be incurred in such liquidation. A part of the 
interest on this surplus for the ten years 19 14-1923 is to 
be turned over to the shareholders as an indemnity for 
the lowering of the paid-in capital mentioned above. 

The Bank of Naples and the Bank of Sicily have no 
shareholders, and the yearly net earnings are, therefore, 
devoted to some extent to public purposes and mainly to 
the creation of a surplus, which has already attained to a 
very respectable sum. In the case of these two institu- 
tions, inasmuch as they have no shareholders but own 
their capital outright, the distinction between the property 
which constitutes their regular capital and the surplus is 
of minor importance. In their case the surplus is in 
reality merely a distinct part of their property in their 
bookkeeping. 



249 



National Monetary Commission 

XII. — The Banks of Issue in their Relations to 
THE State. — Taxes. — The Government's Share in 
THE Profits. — Statements. 

The banks of issue are obliged to advance money to 
the Government at the rate of interest of i >^ per cent net, 
government bonds and treasury bills being deposited 
with them as security. The maximum amount of these 
advances is fixed at 115,000,000 lire for the Bank of Italy 
and 10,000,000 lire for the Bank of Sicily. On account of 
its former unfavorable condition, the Bank of Naples was 
freed from this obligation. 

The Bank of Italy is furthermore obliged, on the demand 
of the minister of finance, to advance to the National De- 
posit and Loan Institution {Cassa dei Depositi e Prestiti) 
cash sums up to 50,000,000 lire at a rate of interest not 
exceeding 3 per cent, government bonds or other obligations 
guaranteed by the Government being given as security. 

The receiving and disbursing of the public moneys 
throughout the whole extent of the Kingdom has been 
intrusted to the Bank of Italy since February i, 1895. 
The bank furnished as security government bonds to the 
value of 90,000,000 lire. 

The supervision over the banks of issue rests with 
the ministry of finance. For this purpose the ministry 
maintains a central bureau under an inspector-general 
and a permanent commission. The former discharges 
the actual duties of supervision. An inspector is dele- 
gated by the Government to attend the meetings of the 
general assembly of the shareholders and the superior 
council of the Bank of Italy and of the general and ad- 



250 



The Italian Banks of Issue 

ministrative councils of the Bank of Naples and the Bank 
of Sicily, and is empowered to interpose his veto against 
any resolution considered by him illegal, a report being 
submitted by him to the finance minister, with whom the 
ultimate decision rests. It is his business to report directly 
concerning all resolutions, even those against which he has 
not interposed his veto, and on the strength of his report 
the minister of finance may within five days suspend 
and finally annul all illegal resolutions irrespective of 
whether the inspector has interposed his veto or not. 
The resolutions adopted at the meetings of the mana- 
ging bodies must be communicated to the minister 
of finance by the director-general within two days. 
The finance minister orders periodical (triennial) and ex- 
traordinary examinations of the cash on hand, the reserve, 
the circulation, and the stock of bills and promissory 
notes, in particular the foreign bills and the notes that 
have been discounted at reduced rate {saggio ridotto). 
The central bureau exercises a general supervision over 
the administration and over the nature of the busi- 
ness transactions with respect to legal requirements. It 
supevrises the business of the Bank of Italy in the 
receiving and disbursing of public moneys. The per- 
manent commission draws up legal opinions for the 
benefit of the Government concerning important ques- 
tions relating to the bank laws and their execution and 
the administration and inspection of the banks. This 
body consists of four commissioners appointed by the Sen- 
ate from its midst, four commissioners appointed by the 
Chamber of Deputies from its midst, and fiy^ delegates 



251 



National Monetary Commission 

of the Government. The delegates of the Government 
are: The president or a member of the council of state, 
the president or a member of the chamber of audit, the 
director-general of the treasury, the inspector-general of 
the banks of issue in the ministry of finance, and the 
director-general of the credit department in the ministry 
of commerce. 

The banks are subject to the following taxes and dues: 

(a) The general personal-property -tax. 

(6) The dues in connection with demand liabilities and 
loan transactions. 

(c) An ordinary tax on circulation levied upon the 
amount of notes outstanding (taking the average for the 
year) below the normal maximum. Of this amount, how- 
ever, that portion which corresponds to the sum of the 
reserve and the advances to the Government is not sub- 
ject to the tax. In other words, so much is to be de- 
ducted from the total circulation. With the discharge of 
their obligations in the matter of the progressive liquida- 
tion of their real estate assets and such investments as 
were no longer permissible, the banks had the benefit 
of a gradual reduction of this tax on circulation, which 
at first was i per cent of the average amount of notes 
outstanding (with the above-mentioned deduction) and 
which came down in 1909 to the minimum of one- 
tenth of I per cent, the immobilized assets having 
ceased to exist. 

{d) A special and an extraordinary tax on the amount 
of notes in circulation in excess of the normal maximum 
(or the amount not covered by the prescribed reserve of 



252 



The Italian Banks of Issue 

40 per cent) , as described in detail in a preceding section. 
Here likewise the amount corresponding to the reserve is 
exempt from the tax. 

(e) A sort of penal tax on transactions not sanctioned 
by the law, amounting to three times the rate of discount 
or of interest involved in the business in question. 

(/) Inspection fees, designed to reimburse the Govern- 
ment for the expense of supervision. The annual sums 
paid by the banks are at present as follows: Bank of 
Italy, 70,000 lire; Bank of Naples, 21,000 lire; Bank of 
Sicily, 5,000 lire. 

{g) The Bank of Italy pays the regular transfer tax on 
its shares when they change hands, and the Bank of 
Naples and the Bank of Sicily, as permanent institutions 
owning their own capital, have to pay mortmain dues, 
or rather, taxes. 

The State receives furthermore (since January i, 1909), 
as its share of the profits of the banks of issue, one-third of 
the yearly net earnings, if these are in excess of 5 per cent 
and below 6 per cent, and if the net earnings exceed 6 per 
cent, one-half of such excess in addition. It is to be noted 
here that the determination of the percentage of the net 
earnings of the Bank of Italy relatively to the capital is 
to be made with reference only to the paid-in capital and 
with deduction of a definite portion assigned to the pen- 
sion fund in behalf of the employees. In the case of the 
Bank of Naples and the Bank of Sicily the percentage of 
the net earnings is reckoned with reference to the aggre- 
gate amount of their free capital and the surplus, as the 
latter is merely a separately reckoned part of the former. 



253 



National Monetary Commission 

On the tenth, twentieth, and last day of each month 
the banks have to send to the ministry of finance a 
detailed statement of their condition. The form of 
the statement is prescribed by royal decree. The state- 
ments are all published succinctly in the official organ of 
the Government and those that appear at the end of the 
month are given in full to the public by the ministry of 
finance in a special bulletin. This bulletin contains also 
the monthly reports concerning the amount of bank notes 
issued and redeemed, the volume of the discount and loan 
transactions at each of the branches, the exchange of notes 
between the banks, the treasury notes, etc. 

XIII. — Statistics. 

Condition of the hanks of issue on December jt, iSgj, and September jo, igog 

[In millions of lire.] 



Date of 


Bank. 


T3 

<u 
X 

<c 

u 

. 
_ >> 

1^ 

a a 
a 


VI 

3 

'3. 

1 


.2 
+j 

S 

"3 

u 


Deposits 
and other lia- 
bilities 


Reserve against circula- 
tion and demand lia- 
bilities.o 


c/i 

3 
03 
0^ 

13 
3 

rt 

in 
+j 

3 
3 



5 




■§ 

(LI 


state- 
ment. 


"^ in 

6:5 


e 


.S 

Tl 
4; 
+J 
m 

0) 

> 

3 

M 


1897. 
Dec. 31 -- 

1909- 
Sept. 3 p.. 


Bank of Italy 

Bank of Naples 

Bank of Sicily 

Bank of Italy 

Bank of Naples 

Bank of Sicily 


180. 
65. P 
12. p 

i8p. p 
50. 
12. p 


43- 6 
3-9 
5-0 

48. p 

11-5 
8.P 


789. 2 

238.8 

58.2 

1,467.2 

386. p 

87.1 


88. I 
41. p 
22.3 

134- 2 
55- 5 
29. 8 


130- 
31.7 

13-5 

79. 4 
32. 7 
12.9 


445- 6 

116. I 

38.2 

1,142.9 

281. 5 

69. I 


195- 5 
78.4 
33- 4 

503. 7 

146. 4 

63.3 


I2P. 2 

75- 2 
13- 3 

173- I 

83. 5 

9 9 



o Including foreign bills and securities and credit balances in foreign institutions. 
'' Exclusive of foreign bills, which are reckoned in the reserve. 
'Exclusive of foreign securities, which are reckoned in the reserve. 



254 



The Italian Banks of I s s u 

Cash reserve of the hanks of isstce. 
[In millions of lire.] 



Date of state- 
ment. 



Dec. 31, 1897. 



Sept. 30. 1909 



Bank. 



Bank of Italy. - 
Bank of Naples 
Bank of Sicily. . 

Bank of Italy.. 
Bank of Naples 
Bank of Sicily. . 



Gold. 


Silver 
.900 fine. 


300. 2 


40. 4 


61.6 


10. s 


35- 2 


1-3 


947- 7 


107.8 


195- 9 


17- 4 


56. 


4. 2 



Foreign 
bills and 
securi- 
ties and 
credit 
balances 
in foreign 
institu- 
tions. 



60. I 



1-3 

87.4 

45- 2 

8.9 



Rate of discount of the banks of issue. 





Bank. 


Normal 
rate. 


Special rate. 


Date of 
statement. 


Sconto di favore. 


Sconto a saggio 
ridotto. 




Maxi- 
mum. 


Mini- 
mum. 


Maxi- 
mum. 


Mini- 
mum. 


Dec. 31, 1897. - 
Mar. 31, 1908-- 


Bank of Italy 

B ank of Naples 

Bank of Sicily 

Bank of Italy 

Bank of Naples 

B ank of Sicily 


5 
5 
S 

5 
5 
5 


4^ 
4K 
4 'A 

4 
4 

4 


4 
4 
4 

4 
4 
4 


4H 
4M 
4M 

3K 

' 3K 
3^ 


4 
4 
4 

3K 
3K 
3K 



39781' 



II- 



•17 



255 



Text of the Law Relating to the Banks of 

Issue and the Circulation of 

Bank Notes in Italy 



257 



CONTENTS. 

Page. 

Royal decree 261 

Title I. — Issue of notes and other obligations 263 

Title II.— Circulation 265 

Section I. — Limit of circulation 265 

II. — Exchange of notes 266 

III. — Reserve 267 

IV. — Circulation tax and participation of the State in the 

profits of banks of issue 273 

Title III. — Advances to the treasury 277 

Title IV. — Operations 277 

Section I. — Discounts 277 

II. — Advances 280 

III. — Ptirchase and sale of bills of exchange, drafts, and 

assignments on foreign countries 283 

IV. — Direct investments 284 

V. — Deposits in current accounts 287 

VI. — Issue of customs certificates, and provincial revenue 

service 287 

VII. — Provincial service of the Royal Treasury 289 

VIII. — Special operations of the Bank of Naples: Savings 
branch, pawn office, custody of remittances and 

savings of Italian emigrants abroad 290 

IX. — Agrarian credit and savings branch of the Bank of 

Sicily 293 

X. — Other regulations 295 

Title V. — Mutual redemption of notes among the several banks 298 

Title VI. — Liquidation of the Banca Romana 299 



259 



National Monetary Commission 

Page. 
Title VII. — Liquidation of realty credits of banks of issue 301 

Section I. — Special regulations for the credit foncier or realty- 
credits of the former Banc a Nazionale nel Regno 

and the Bank of Sicily 301 

II, — Special regulations for the realty credits of the Bank 

of Naples 305 

III. — Regulations common to the realty credit adminis- 
trations of the three banks 311 

Title VIII. — Supervision of circulation and banks of issue 318 

Section I. — General regulations 318 

II. — Permanent commission 318 

III. — Permanent supervision 321 

IV. — Periodical and extraordinary inspections 325 

Title IX. — General regulations 329 

Title X.— Penalties 331 

Title XI. — Temporary regulations 334 

APPENDICES. 

I. — Royal decree, October 10, 1895, No. 627, fixing the require- 
ments for the admission of bills of exchange on foreign 
countries and credits in current accounts abroad as part of 

the reserve of banks of issue 336 

II. — Royal decree, October 25, 1895, No. 639, authorizing the banks 
of issue to discount on bills of exchange bearing first-class 

signatures at less than the normal rate 340 

III. — Royal decree, February 9, 1908, No. 62, regulating the dis- 
count by banks of issue of bills issued by the obligatory 
"Association" for the Sicilian sulphur industry to the Au- 
tonomous Bank of Mining Credit for Sicily 343 



260 



TEXT OF THE LAW RELATING TO THE BANKS 
OF ISSUE AND TO THE CIRCULATION OF 
BANK NOTES IN ITALY. 



ROYAL DECREE. 

Victor Emmanuel III, by the Grace of God and the 
Will of the Nation, King of Italy. 

By virtue of the power conferred upon the Government 
by article 5 of the law of December 24, 1908, No. 723, to 
collect and publish by our decree in a new text the whole 
body of laws governing banks of issue and the circulation 
of bank notes; and 

In pursuance of the Text of the Law relative to the 
banks of issue and to the circulation of bank notes, ap- 
proved by Royal Decree, October 9, 1900, No. 373; and 

In pursuance of the laws of February i, 1901, No. 24; 
July 7, 1901, No. 334; July 7, 1902, No. 290; December 
27, 1903, No. 499; June 25, 1905, No. 261; July 7, 1905, 
Nos. 349 and 350; March 29, 1906, No. 100; June 25, 1906, 
No. 255; July 15, 1906, Nos. 333, 383, and 441; December 
31, 1907, No. 804; July 2, 1908, No. 320; July 5, 1908, 
Nos. 351, 388, and 404; July 12, 1908, No. 444; December 
24, 1908, No. 423; July 15, 1909, No. 492; and 

With the consent of the banks of issue ; and 



261: 



National Monetary Commission 

In pursuance of the results of the meetings held Feb- 
ruary II, 12, 13, and 16, 1909, of the subcommittee of the 
permanent committee for the supervision of the circula- 
tion and the banks of issue; and 

In pursuance of the report of the aforesaid permanent 
committee; and 

With the consent of the council of state ; 

With the consent of the council of ministers; and upon 
the proposal of our secretary of state for the treasury; 

We have decreed and do hereby decree : 

That the attached Text of the whole body of law re- 
garding banks of issue and the circulation of bank notes 
be, and is hereby, approved. 

We hereby command that the present decree, sealed 
with the State seal, be placed in the official compendium 
of the laws and decrees of the Kingdom of Italy, binding 
upon all the persons whose duty it is to observe it to enforce 
the observation thereof. 

Given at Rome on this 28th day of April, 1910. 

Victor Emmanueiv. 

lyUZZATTI. 

Tedesco. 
Witness the keeper of the seals: 

Fani. 

(This present decree was published in the Official 
Gazette of the Kingdom, May 27, 19 10, No. 123.) 



262 



Law Relating to Banks of Issue 

TEXT OF THE LAW. 
T1T1.E I. — Issue of Notes and other Obugations. 

ARTICLE I. 

[Articles 1,2, and 24, law of August 10, 1893, No. 449. Article 7 of agree- 
ment with the Bank of Italy, October 30, 1894, approved by royal decree 
December 10, 1894, No, 533 (appendix to the law of August 8, 1895, 
No. 486). Articles i and 21 of agreement with the Bank of Italy, No- 
vember 28, 1896, approved by royal decree December 6, 1896, No. 517 
(Appendix A to law of January 17, 1897, No. 9). Article 17, Appendix 
B, and Article 15, Appendix C, to previous-named law. Article 14, 
law of March 3, 1898, No. 47.] 

The right to issue bank notes or other equivalent 
obligations payable to bearer at sight is granted for a 
period of twenty years from August 10, 1893, to the 
following institutions : 

The Bank of Italy, with a nominal capital of 240,- 
000,000 lire, divided into 300,000 personal shares of 800 
lire each; 

The Bank of Naples; 

The Bank of Sicily. 

Two years before the expiration of the aforemen- 
tioned term a commission composed of seven members, 
of whom two are to be elected by the Senate, two by 
the Chamber of Deputies, and three appointed by royal 
decree with the consent of the Council of Ministers, shall 
proceed to an examination of the condition of the three 
banks of issue with a view to certifying their exact 
fulfilment of the requirements imposed by law. 

The said commission shall complete its labors and 
make a report within six months. 

If, upon such examination, it shall appear that said 
requirements have been fulfilled, the privilege above 
named shall be extended until December 31, 1923. 

263 



National Monetary C ommis s io 



n 



ARTICLE 2. 

[Article 14, law of April 30, 1874, No. 1920. Article 19, law of April 7, 
1881, No. 133. Article i, law of August 10, 1893, No. 449. Article 
2, Appendix T to law of August 8, 1895, No. 486.] 

The banks authorized to issue notes are empowered 

to estabhsh branches {sedi), subbranches (succursali) , or 

agencies (agenzie) in any Province in the Kingdom under 

the conditions of their respective charters. They must, 

however, maintain representative headquarters in the 

capital. 

ARTICLE 3. 

[Article 7, law of August 10, 1893, No. 449. Article 10, Appendix I to 
law of July 22, 1894, No. 339.] 

The Bank of Italy, the Bank of Naples, and the Bank 
of Sicily are authorized to issue notes of the denomina- 
tions of 50 lire, 100 lire, and 1,000 lire. 

ARTICLE 4. 
[Article 9, law of August 10, 1893, No. 449.] 

In the manufacture of notes of the three institutions, 
the State and each one of them, respectively, participate, 
so that neither the State nor the institution alone may 
manufacture an entire note. 

The rules for the manufacture of notes, for their re- 
placement when they shall be worn out or damaged, 
and for their cancellation and destruction, are deter- 
mined by a regulation approved by royal decree. The 
same decree states the amount of notes to be allowed 
to each institution as an initial working fund, and estab- 
lishes rules to control the use of same." 

a Royal decree of Oct. 30, 1896, No. 508, modified by royal decree of 
Mar. 7, 1907, No. 73. 

264 



Law Relating to Banks of Issue 

The forms, denominations, and characteristics of notes 
to be manufactured are fixed by decree of the minister 
of the treasury. 

The expenses of manufacture of notes shall be met by 
the institutions. 

The manufacture and the supplying of notes shall 

involve the State in no liability either to the public or 

to the banks. 

ARTICLE 5. 

[Article 11, paragraph 2, law of August, 1893, No. 449.] 

Promissory notes, bills of exchange, banking assign- 
ments, and certificates of credit payable at sight in all 
the offices of each institution must be personal. 

Title II. — Circulation. 

Section I. — Limit of circulation. 

ARTICLE 6. 

[Law of December 31, 1907, No. 804 (Appendix A).] 

The maximum normal limit of circulation of the banks 
is fixed at 908,000,000 lire, divided as follows: 

Lire. 

Bank of Italy 666, 000, 000 

Bank of Naples 200, 000, 000 

Bank of Sicily 48, 000, 000 

The privilege of the Bank of Sicily to extend the 
normal limit of its circulation up to a further 10,000,000 
lire is confirmed, for the exclusive purpose of making 
advances on certificates of deposit and granting prefer- 
ential rates of discount on warrants in its dealings with 
the sulphur industry, under article 22 of the law of July 
15, 1906, No. 333, and the law of June 6, 1907, No. 286. 



26i 



National Monetary C ommis s io 



n 



ARTICLE 7. 

[Article 2, law of August 10, 1893, No. 449, Article 2, law of February 

16, 1899, No. 45.] 

The circulation of each institution may exceed the 
limit stated in article 6, when their respective notes are 
entirely covered by legal metallic coin or by gold bars on 
hand, excepting the provision made by article 11 for 
fractional silver currency. 

Exception is also made in the case of the circulation of 
notes corresponding to the advances made by the banks 
to the State, as per article 25. 

All other infractions of the circulation limit assigned 
to each institution by the said article 6 will be subject to 
the provision made in article 21. 

Section II. — Exchange of notes. 

ARTICLE 8. 

[Article 3, law of August 10, 1893, No. 449. Article 5, Appendix F, and 
Article 6, Appendix I, to law of July 22, 1894, No. 339.] 

Holders of notes payable at sight to bearer are entitled 
to require from the institutions issuing same the redemp- 
tion of said notes in coin having legal currency in the 
Kingdom: In Rome and in the cities of Bari, Bologna, 
Cagliari, Catania, Florence, Genoa, Leghorn, Messina, 
Milan, Naples, Palermo, Turin, Verona, and Venice. 

However, until further legislative provision is made, 
and so long as the convertibility of government notes 
with coin shall remain suspended, the exchange of the 
notes of the banks of issue may be made either in govern- 
ment notes or metallic specie. 



266 



Law Relating to Banks of Issue 

In the latter case the said banks shall have the right 
to collect from the bearers of the respective notes the 
price of exchange of the metallic specie, as determined by 
the rate of that day in the nearest stock exchange. 

ARTICLE 9. 

[Article 2, law of June 30, 1891, No. 314. Article 4, law of August 10, 1893, 
No. 449. Law of December 24, 1908, No. 723.] 

The notes of the Bank of Italy, the Bank of Naples, 
and the Bank of Sicily have legal circulation up to and 
including the year 1909 in those provinces in which there 
is a branch or representative of the institution which has 
issued the same, subject to the charge for exchange, as 
prescribed in the preceding article. 

The several institutions may agree to reciprocal repre- 
sentation for the purpose of effecting exchange. 

ARTICLE 10. 
[Article 17, law of April 7, 1881, No. 133.] 

The Royal Treasury may accept the notes of the banks 
of issue, even when such notes shall no longer have legal 
currency. 

Section III. — Reserve. 

ARTICLE II. 

[Article 6, law of August 10, 1893, No. 449. Article 31, law of August 8, 
1895, No. 486. Article 19, aforenamed agreement of November 28, 1896. 
Article 13, Appendix C, to law of June 7, 1897, No. 9. Articles 7, 8, and 9, 
law of March 3, 1895, No. 47. Article 2, law of February 16, 1899, No. 45. 
Article 2, law of December 27, 1903, No. 499. Article 19, law of July 7, 
1905, No. 350.] 

The reserve of banks of issue must not be less than 40 
per cent of the circulation within the normal limit, as per 
article 6. 



267 



National Monetary Commission 

The metallic portion must be in Italian legal coin, 
foreign money admitted to legal circulation in the King- 
dom, and gold bars; and it must consist of at least three- 
fourths gold. 

Fractional silver coin may be included in the metallic 
reserve of an institution only up to 2 per cent of the total 
of the said metallic reserve. 

The following may be included in the 40 per cent of the 
aforesaid reserve: 

1. Bills of exchange, drawn on first-class foreign firms, 
which are recognized as such by the minister of the 
treasury. 

2. Certificates of sums deposited in current accounts 
abroad in large banks of issue or with banks or bankers 
correspondents of the treasury. 

3. Treasury bonds of the British treasury, and, in 
general, treasury bonds of other foreign countries, for 
terms even longer than three months, except as per 
paragraph i, article 14. These classes of securities may 
be included as part of the aforementioned reserve as 
follows : 

For the Bank of Italy up to 15 per cent. 

For the Bank of Naples, up to 15 per cent, except as 
per article 13 ; on condition, however, that 8 per cent must 
be exclusively in foreign government treasury bonds. 

For the Bank of Sicily up to 15 per cent. 

The bills of exchange, certificates, and treasury bonds 
aforesaid must be payable in gold or in coin at the full 
valuation of the Latin Monetary Union. 

The certificates of amounts deposited abroad in current 
accounts must not in any case represent a value more 
than 3.50 per cent of the above-named circulation. 



268 



Law Re I at in g" to Banks of Issue 

ARTICLE 12. 

[Article 8, Appendix B, to law of January 17, 1897, No. 9. Article 9 of 

same law.] 

The interest of the ItaHan Government bonds or of 
bonds guaranteed by the State, acquired by the Bank of 
Naples in 1897, together with the notes furnished to it 
by the treasury in exchange for gold coin and temporarily 
included in its reserve, is to be used every six months for 
the reintegration of its metallic reserve in gold coin, thus 
providing for a gradual restitution of government notes 
to the treasury in redemption of an equal amount of gold 
to be kept in its vaults. 

The guaranty clause in favor of holders of notes issued 
by the bank, applying to the personal certificates of the 
aforesaid bonds shall continue in force until redemption 
of the gold reserve shall have been completed. The 
government notes which are returned to the treasury 
shall be withdrawn from circulation. 

ARTICLE 13. 

[Articles 10 and 15, Appendix B to the law of January 17, 1897, No. 9. 
Article 4, law of December 24, 1903, No. 499. Article 19, law of July 4, 
1905, No. 350.] 

The Bank of Naples, besides the 15 per cent, as per 
article 11, is empowered to invest up to 14,000,000 of its 
metallic working fund in treasury bonds of foreign 
governments, payable in gold or in silver at the full 
valuation of the Latin Union, or in foreign bills of exchange 
or current accounts payable at the same rates, subject to 
the gradual redemption of gold specie paid into the treasury 
in exchange for the issue of state bonds as per the pre- 
ceding article, and to an amount not exceeding one-half 
the amount of specie released annually. 

269 



National M on et ar y Commission 

The Government may, in view of the conditions of the 
money market, and the condition of the government 
balance, suspend such power of investment of the metallic 
working fund of the bank, or may reduce the amount 
which may be invested, on condition that it compensate 
the institution for the loss of benefits which it might 
derive therefrom by a corresponding allowance on the 
amount of the annual circulation tax. Such allowance 
may not, in any case, exceed the sum of 350,000 lire. 

ARTICLE 14. 

[Article 31, law of August 8, 1895, No. 486. Article 9, law of March 3, 1898, 

No. 47.] 

The requirements for the inclusion of bills of exchange 
on foreign countries in the reserve fund, the forms of 
certificates of foreign current accounts, and the rules for 
balancing the relative active deposits are determined by 
the royal decree of October 10, 1895, No. 627.^ 

Whenever the treasury bonds designated in article 11, 
No. 3, are for terms exceeding three months, their value 
shall be diminished by a sum equal to their loss in value 
in case such bonds should be discounted or re discounted. 

ARTICLE 15. 

[Article 2, law of January 17, 1897, No. 9. Article 3, agreement of Novem- 
ber 28, 1896, before mentioned. Article 9, Appendix B, and 2, Appendix 
C, to law of January 17, 1897, No. 9. Article 3, agreement of November 
26, 1907, law of December 31, 1905, No. 804, Appendix A.] 

Anything in the article 11 to the contrary notwith- 
standing, the metallic reserve for the circulation granted 
to the. three banks, actual or equalized by process of law, 
must in no case fall below the minimum irreducible limit 

o Appendix I. 



270 



Law Relating to Banks of Issue 

of 400,000,000 lire for the Bank of Italy, of 120,000,000 
lire for the Bank of Naples (excepting, in the case of the 
Bank of Naples, the substitution, as per article 12, of 
Italian Government bonds, or bonds guaranteed by the 
State, for a part of said bank's gold reserve), and of 
28,000,000 lire for the Bank of Sicily. These said sums 
are to act exclusively as a guaranty for an equal amount 
of notes in circulation of the three institutions. 

The holders of that portion of the notes in circulation 
which is not covered by the irreducible reserve have a 
preferred claim on the following assets: 

1. Gold specie and legal silver coin, property of the 
institution, less the amount assigned as guaranty for sight 
deposits, as per article 19, and over and above the irre- 
ducible amount; 

2. Italian treasury bonds or other Italian Government 
bonds or bonds guaranteed by the State at current value, 
including, for the Bank of Italy, bonds set aside for the 
Roman Bank in liquidation, and, for the Bank of Naples, 
those released, as per article 12, by successive redemp- 
tions of gold specie ; 

3. Bills of exchange on foreign countries not included 
in those forming part of the metallic reserve ; 

4. Credits for advances on bonds and securities, as per 
article 29; 

5. Domestic discounts in liquid form. 

The circulation of the Bank of Italy and the Bank of 
Sicily on account of their ordinary advances to the 
treasury, is entirely covered by the respective bonds, 
which, like the irreducible reserve, constitute an exclusive 
guarantee in favor of holders of the respective notes. 

39781° — II — -18 271 



National Monetary Commission 

ARTICLE i6. 
[Article 5, law of March 3, 1898, No. 47.] 

The irreducible metallic reserve, actual or equalized by 
process of law, as per the preceding article, intended solely 
to guarantee the bank notes in circulation, is held separate 
and distinct from the other reserve possessed by the 
institutions and is subject to the ''permanent syndicate" 
of the State, according to the rules fixed by a royal decree.*^ 

ARTICLE 17. 

[Article 4, agreement aforementioned, November 28, 1896. Article 11, 
Appendix B, and Article 3, Appendix C, to law of January 17, 1897, 
No, 9. Article 7, law of December 31, 1907, No. 804.] 

The domestic discounts of the three banks of issue 
will be relieved from preference for a sum equal to their 
respective increase of amounts invested in Italian treasury 
bonds and in other bonds of the Italian Government or 
those guaranteed by the State, except, in the case of 
the Bank of Naples, such as come under article 12. 

ARTICLE 18. 

[Article 7, law of June 30, 1891, No. 314. Article 21, law of August 10, 

1893, No. 449.] 

Such notes as the Bank of Italy and the Bank of 
Sicily have in circulation on account of advances made 
to the state treasury within the limits laid down in 
article 25, and not included in the circulation under 
article 6, must be covered by metallic reserve to the 
extent of not less than one-third. 

« Royal decree of Aug. 3, 1898, No. 392. 



272 



Law Relating' to Banks of Issue 

ARTICLE 19. 

[Articles 6 and 11 (paragraph i), law of August 10, 1893, No. 449. Article 
2, law of February 16, 1899, No. 45.] 

The debt of the several institutions represented by 
promissory notes or bills of exchange, banking assign- 
ments, certificates of credit, or other certificates, besides 
the notes issued but payable at sight, must be guaranteed 
by a special reserve, equal to at least 40 per cent of the 
debt itself, of which 33 per cent is to be made up of 
Italian legal coin, foreign coins admitted to legal circula- 
tion in the Kingdom, and gold bars, while the remainder 
may be made up of bills of the first class on foreign coun- 
tries, recognized as such by the treasury. 

The metallic portion of the reserve must be at least 
three-fourths in gold. 

Fractional silver money may be included as per 
article 11. 

Section IV. — Circulation tax and the participation of the 
State in the profits of banks of issue. 

ARTICLE 20. 

[Article 13, law of July 7, 1905, No. 350. Law of December 31, 1907, No. 

804, Appendix A.] 

The circulation tax is based on the average effective cir- 
culation of notes, deducting, however, an amount equal to 
the amount of reserve as per article 1 1 . Such circulation 
is not subject to tax, even if it exceeds the limit fixed 
by article 6, provided that the notes are wholly covered 
by legal coin or by gold bars on hand, as per article 7, 
first paragraph. 



273 



National Monetary Commission 

Freedom from taxation is also granted to the circula- 
tion on account of the ordinary advances to the treasury, 
as per article 25, and to the circulation of the notes of 
the Bank of Italy, as per article 68. 

The rate of taxation for the three banks of issue, on 
the normal circulation, is one-tenth of i per cent per 
annum. 

Beginning with January i, 1909, there will be remitted 
to the Bank of Naples the circulation tax on an amount 
of notes of its own issue equal to the amount of its cur- 
rent account with the realty branch closed on December 
31, 1896, reduced by the reservations provided by 

article 87. 

ARTICLE 21. 

[Law of December 31, 1907, No. 804.] 

The tax shall be equal to one-third of the rate of dis- 
count of the circulation of notes exceeding the normal 
limit, provided that the prescribed relation be maintained 
with the metallic reserve, as per article 1 1 , and provided 
such excessive circulation be not above the following 

amounts : 

Lire. 

Bank of Italy 50, 000, 000 

Bank of Naples 15, 000, 000 

Bank of Sicily 4, 000, 000 

When the circulation of notes exceeds these amounts, 
the tax on the excessive circulation, up to twice these 
same amounts shall be equal to two-thirds of the rate of 
discount, provided always the prescribed relation be 
maintained with the metallic reserve. 

On the circulation which exceeds the amounts of 
icx),ooo,ooo lire and up to 150,000,000 lire for the Bank 



274 



Law Relating to Banks of Issue 

of Italy, 30,000,000 lire and up to 45,000,000 lire for 
the Bank of Naples, and 8,000,000 lire and up to 12,000,000 
lire for the Bank of Sicily, provided that the prescribed 
relation with the metallic reserve be maintained, the 
tax shall be equal to the whole rate of discount. 

On further excesses of circulation, or when the pre- 
scribed relation with the metallic reserve is not main- 
tained, the institutions shall pay to the State an extraor- 
dinary tax of 7.50 per cent. 

ARTICLE 22. 

[Article 10, law of August 10, 1893, No. 449. Article 3, law of July 2, 1896, 

No. 253.] 

The circulation tax on notes, and that imposed, as pre- 
scribed by article 67 of the law (Text) of July 4, 1897, 
No. 414, on the circulation of sight bills therein described, 
shall be paid between January 20 and July 20 of each 
year, at the average rate of the respective circulation 
ascertained for the six months preceding. 

ARTICLE 23. 

[Article 16, agreement before mentioned of November 28, 1896. Article 16, 
Appendix B to law of January 17, 1897, No. 9. Article 12, Appendix C 
to law of January 17, 1897, No. 9. Appendix A to law of December 31, 
1907, No. 804. Article 5, agreement of November 29, 1908, between the 
Bank of Italy and the Government and approved by law of December 
24, 1908, No. 123.] 

Beginning, with January i, 1909, the State shall par- 
ticipate in the earnings of the Bank of Italy exceeding 
5 per cent per annum on the capital invested, net after 
making all deductions prescribed in the succeeding article, 
and in the earnings of the Bank of Naples and the Bank 
of Sicily exceeding 5 per cent on the total free capital — 



275 



National M on et ar y C ommis s to 



n 



capital and surplus — to be determined at the time this 
present article goes into effect. 

The State shall participate to the extent of one-third of 
the net earnings exceeding 5 per cent when such net earn- 
ings do not exceed 6 per cent; one-half of the said earn- 
ings when such earnings exceed 6 per cent. 

ARTICLE 24. 

[Article 13, law of August 10, 1893, No. 449. Article 7, Appendix B to 
law of January 7, 1897, No. 9. Article i, Appendix C to law of January 
17, 1897, No. 9. Article 4, law of December 31, 1907, No. 804. Article 
5, aforesaid agreement of November 29, 1908.] 

In the years 1909 to 1923, inclusive, 5 per cent of the 
net earnings of the Bank of Italy shall be deducted from 
the net earnings for the fiscal year for a pension fund, as 
stipulated by article i of the agreement of November 29, 
1908, between the said bank and the Government, and in 
the years 191 4- 1923 a constant annuity of 750,000 lire 
shall be deducted, for the same purpose and from the 
same earnings, before declaring a dividend. 

In the year 1923, by agreement between the royal treas- 
ury and the administration of the bank, the necessary 
measures shall be taken to assure a pension to such as 
are on the pay rolls of defunct institutions from 1924 and 
on; if there shall be a final remainder, it shall go even- 
tually into the earnings of the institution. 

The banks of Naples and of Sicily shall be empowered to 
grant, yearly, to approved purposes of public utility and 
benefit, a sum which must not exceed one-tenth of the 
earnings of the previous year. 



276 



Law Relating to Banks of Issue 

The Bank of Sicily is authorized to give for agricultural 
education in Sicily one-tenth of the net earnings of its 
agrarian credit and two-hundredths of those of the bank- 
ing business. 

Title III. — Advances to the Treasury. 

ARTICLE 25. 

[Article 30, law of August 8, 1895, No. 486. Article 11, law of March 3, 

1898, No. 47.] 

The total amount of advances which the banks of issue 
must make to the treasury is fixed at 125,000,000 lire, 
divided as follows: 

Lire. 

Bank of Italy 115, 000, 000 

Bank of Sicily 10, 000, 000 

The interest due from the treasury on said advances is 
made up at the rate of 1.50 per cent free of all taxation. 

Title IV. — Operations. 

ARTICLE 26. 
[Article 12, law of August 10, 1893, No. 449.] 
The institutions of issue can not carry on operations 
other than those indicated in the following articles : 

Section I. — Discounts. 

ARTICLE 27. 
[Article 12, law of August 10, 1893, No. 449.] 

Banks of issue may discount for not more than four 
months : 

(a) Bills of exchange bearing the signatures of two or 
more persons or firms well known to be solvent. 

(h) Treasury bonds. 



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National Monetary Commission 

(c) Warrants (note di pegno) issued by public ware- 
house companies legally constituted and free consignments 
(franchi depositi) . 

(d) Stock certificates on which the bank may make 
advances. 

ARTICLE 28. 

[Article 5, law of December 27, 1903, No. 449. Law of December 31, 1907, 
No. 804 (Appendix A). Article 8, law of July 5, 1908, No. 404.] 

During the legal currency of notes the normal rate of 
discount is the same for all the banks and may not vary 
without the authorization of the minister of the treasury. 

The minister of the treasury, by a provision applicable 
to all three banks simultaneously, may effect changes in 
the normal rate of discount whenever he may consider 
that conditions of the market so require. 

But the banks may discount, at a charge of i per cent 
or less, bills of exchange presented by people's banks, 
mining banks," and by such institutions of discount and 
agricultural credit as are organized: 

1. To serve as intermediaries between the small trades- 
men and the banks of issue. 

2. To discount warrants of public warehouses and con- 
signments free taxation (franchi depositi) . 

The banks of issue are also authorized to discount at i 
per cent or less, for two-thirds of their value, warrants 
issued on citrus products, on whose certificates of deposit 
in the public warehouses the Chamber of Citrus Fruit, 
estabHshed by law of July 5, 1908, No. 404, has made 
advances, except as per article 12 of the same law. 

a See the royal decree of February 9, 1908, No. 62 (Appendix III). 



278 



Law Relating to Banks of Issue 

Said discount at preference rate must not exceed: 

Lire. 

For the Bank of Italy loo, ooo, coo 

For the Bank of Naples 30, 000, 000 

For the Bank of Sicily 9, 000, 000 

The banks may moreover apply the preferential rate 
to the direct discount of warrants: 

(a) Issued by the companies, as per article 2 of the law 
of July 8, 1903, No. 320, which conduct the public stores 
for vegetables. 

(6) On silks deposited in public warehouses legally 
constituted. 

(c) On sulphur deposited in public or similar warehouses 
as per article 13 of the royal decree of July 22, 1906, 
No. 378. 

Besides the exceptions considered in this article, the 
banks of issue may charge discount on bills of exchange, 
during the period of their legal currency, at a rate lower 
than the normal, under the circumstances determined by 
the royal decree of October 25, 1895, No. 639." 

The said rate, which must in no case be less than 3 
per cent, may be varied by decree of the minister of the 
treasury, with the consent of the banks of issue, whenever 
the conditions of the market render it advisable. 

ct Appendix II. 



279 



National M o n et ar y Commission 

Section II. — Advances.^ 

ARTICLE 29. 

[Law of December 31, 1907, No. 804 (Appendix A). Article 19, law of 

July 12, 1908, No. 444.] 

The banks may make advances for not more than four 
months : 

1. On government bonds or treasury bonds. On long- 
term treasury bonds an advance may be made for as long 
as two years, under article 3 of the law of April 7, 1892, 
No. III. 

2. On bonds guaranteed by the Government or of which 
the Government has guaranteed the interest, whether 

o^By virtue of article 5, of the royal decree of July 11, 1904, No. 337, 
having force of law, the banks of issue are authorized to make advances on 
the special notes issued by the Autonomous Section of Communal and Pro- 
vincial Credit in accordance with the law of July 8, 1904, No. 320, and the 
accompanying decree, under the conditions fixed by the present article of 
the Text of the banking laws for advances on "government bonds or bonds 
guaranteed by the State." 

By article 6 of the law of June 25, 1905, No. 261, the certificates authorized 
by article 2 of the same law and already issued, or such as shall be issued, 
under succeeding laws, are equalized for all intents and purposes — and 
therefore for the purposes of this present Text of law — with "bonds on 
the public debt of the State or bonds guaranteed by the State." 

According to article 13 of the agreement of Mar. 26, 1906, between the 
Government and the Italian Southern Railway Company and approved by 
law of July 15, 1906, No. 324, the obligations issued up to and including Mar. 
26, 1906, by the said company under its statutes are placed on a parity with 
"bonds directly guaranteed by the State," in the purview of article 12 of 
the banking law of Aug. 10, 1893, No. 449, and also of articles 29 and 32 of 
this present text. 

According to article 3 of the agreement of July 20, 1906, between the 
Government and the Bank of Italy for a loan in favor of the colony of 
Eritrea — an agreement approved by royal decree of Aug. 26, 1906, No. 
531 — the personal certificates of debt given to the said bank in relation to 
the said operation are considered "for all purposes as government bonds." 

As such will also be considered the certificates to be issued by the govern- 
ment of Eritrea to the Bank of Italy, as per the royal decree of Dec. 6, 1908, 
No. 755. 

280 



Law Relating to Banks of Issue 

directly or by subvention expressly restricted to the 
payment of said bonds. 

3. On notes of realty credit institutions. 

4. On notes issued under the law of June 25, 1906, No. 
255, by the department temporarily annexed to the Catan- 
zaro branch of the Agrarian Credit Institution "Vittorio 
Emmanuele III." 

5. On bonds payable in gold, issued or guaranteed by 
foreign States. 

On bonds classed under Nos. i, 2, and 3, and on long- 
term treasury bonds, advances may be made up to nine- 
tenths of their market value. 

On bonds under No. 4, up to three -fourths of their 
current value. 

On bonds under No. 5, up to four-fifths of their market 
value. 

On treasury bonds up to their full value. 

None of the above-named bonds may be reckoned at 
more than the nominal value. 

6. On gold and silver coins, whether national or foreign, 
in legal circulation, and on gold bars. 

7. On silks, raw and in organzine or woven, reckoned at 
not more than three -fourths of their current value, and 
on silver bars reckoned at not more than two-thirds of 
their current value. 

8. On certificates of deposit issued by public ware- 
houses legally established and on consignments free of 
taxation {franchi depositi) , and on orders of merchandise 
or sulphur, for not more than two-thirds of the value of 
the merchandise which they represent. 



2S1 



National Monetary Commission 

9. On certificates of deposits of spirits and cognac 
actually on hand in the warehouses established accord- 
ing to articles 8 and 9 of the Text of the law on spirits, 
approved by royal decree of September 16, 1909, No. 
704, for not more than one -half of the value of the alcohol 
and cognac deposited. 

The banks may, moreover, make advances up to six 
months. 

(a) On certificates of deposits of silks, issued by public 
warehouses legally established. 

{h) On certificates of deposits of sulphur issued by 
public warehouses, for which see law of July 15, 1906, 
No. 333, and on certificates equalized therewith by 
article 13 of the royal decree of July 22, 1906, No. 378, 
up to four-fifths of the value of the sulphur represented 
by the said certificates, net after all deductions, as per 
the law of June 6, 1907, No. 286. 

The rate of interest on such advances may be less by 
not more than i per cent than the normal rate on other 
advances. 

(c) On certificates of deposit issued by public ware- 
houses deahng in citrus fruits and their products, con- 
ducted by companies as per article 2 of the law of July 
8, 1903, No. 320, for not more than two-thirds the value 
of the merchandise which they represent. 

{d) On deposits of products of citrus fruits up to 
two-thirds of their value. 

{e) On the obligations issued as per article 171 of 
the Commercial Code; article 3, law of July 9, 1905, 
No. 415; article 8, law of June 16, 1907, No. 540; articles 



282 



Law Relati^ig to Banks of Issue 

7 and 8, law of July 12, 1908, No. 444, by grantee railway 
and subsidized extraurban tramway companies, for not 
more than three -fourths the current value of such 



obligations. 



ARTICLE 30. 



[Article 35, law of August 8, 1895, No. 486. Article 26, Appendix P to 

same law.] 

During their legal circulation, the legal interest on 
advances (see preceding article) is the same for all the 
banks, and may not vary without the authorization of 
the Government. 

The minister of the treasury may change the interest 
rate on advances whenever he deems that the conditions 
of the market require it. 

Section III. — Purchase and sale of hills of exchange, 
drafts, and assignments on foreign countries. 

ARTICLE 31. 

[Article 12, law of August 10, 1893, No. 449. Law of December 31, 1907, 

No. 804, Appendix A.] 

The banks of issue may purchase and sell for cash or 
on time, on their own account, drafts and assignments 
on foreign countries, and bills of exchange on foreign 
countries bearing the signatures of two or more firms 
well known to be solvent, for a term not greater than 
three months, and payable in gold. Such operations, 
during their legal currency, may not, without authoriza- 
tion from the minister of the treasury, be extended 
further than may be necessary for the said banks to 
restore their metallic reserve, to convert into deposits 



283 



National Monetary Commis s to 



n 



abroad such personal certificates as may be used for 
the payment of import duties, or to satisfy possible 
orders of the treasury. 

The banks of issue may make investments in foreign 
bills of exchange and accounts current, not intended 
for the reserve covering circulation and sight debts, 
within such limits as may be prescribed by the minister 
of the treasury, in view of the general conditions of the 
money market.^ 

Section IV. — Direct investments.^ 

ARTICLE 32. 

[Article 12, law of August 10, 1893, No. 449. Article 32, law of August 
8, 1895, No. 486. Article 14, law of July 7, 1905, No. 349. Article 57, 
law of June 25, 1906, No. 255.] 

The banks of issue may bave a working fund in 
Italian bonds, or other bonds issued or guaranteed directly 
by the Government, of a current value not to exceed: 

Lire. 

For the Bank of Italy 75, 000, 000 

For the Bank of Naples 30, 000, 000 

For the Bank of Sicily 8, 000, 000 

o Royal decree of Sept. 17, 1908, No. 585. 

b By the terms of article 5 of the royal decree of July 11, 1904, No. 337, 
"having force of law," the banks of issue are authorized to make use of 
the special realty bonds (cartelle) issued by the Autonomous Section of 
Communal and Provincial Credit as per the law of July 8, 1904, No. 320, 
and the corresponding decree, for the conversion of the loan of the Commune 
of Rome, for all the purposes and investments for which said banks of 
issue are authorized to employ government bonds and bonds guaranteed 
by the States. 

See note to article 29 regarding the equalization of railway certificates 
and the obligations of the Italian Southern Railway Companies with govern- 
ment bonds and bonds guaranteed by the State. 

By article 3 of the agreement entered into July 20, 1906, between the 
Government and Bank of Italy for a loan to the colony of Eritrea, which 



284 



Law Relating to Banks of Issue 

The banks of issue are also authorized to invest in 
Italian consolidated bonds or in the aforesaid bonds the 
free portion of their respective surplus, over and above 
their working fund, within the limitations above estab- 
lished, and over and above the investments as per 
articles 34 and 35, within the limitations therein estab- 
lished. 

With the previous authorization of the treasury, the 
Bank of Italy and the Bank of Sicily may employ in the 
acquisition of realty bonds 3.75 per cent or less of their 
respective realty credits: the former up to five and the 
latter up to two millions of the surplus. 

The banks of issue are, moreover, authorized to acquire 
the realty bonds issued, under article 57, law of June 25, 
1906, No. 255, by the department temporarily annexed to 
the Catanzaro branch of the Agrarian Institution of 
Credit "Vittorio Emmanuele III." 

ARTICLE z^. 
[Article 3, law of June 25, 1905, No. 261.] 

The state railway bonds, issued to the banks of issue 
under article 2 of the law of June 25, 1905, No. 261, may 
be used for two purposes, namely, for new investments of 

agreement was afterwards approved by royal decree of Aug. 26, 1906, No. 
531, the said bank is entitled to make use of the special personal certifi- 
cates of debt, granted to it as an equivalent, and considered "for all pur- 
poses as government bonds," in all transactions in bonds made within 
the limitations and for the ends established by the provisions of the present 
Text. According to the said article of the agreement, the bank must assign 
by preference such certificates to cover fixed transactions provided for 
by the laws in force. 

For the same purpose it may use the certificates which may be issued 
to it by the government of Eritrea, as provided by article i of the royal 
decree of Dec. 6, 1908, No. 755. 



285 



National Monetary Commission 

money in bonds, whether said investments are on their 
own account or for affihated enterprises, within the limi- 
tations and for the objects specified by the provisions of 
this present text, and to surrogate bonds of various 
kinds akeady held by them, especially if protected by 
security. Such surrogation shall take place after a previ- 
ous agreement, for the protection of the bond market, 
between the administrations of the banks of issue and the 
minister of the treasury. 

ARTICLE 34. 

[Articles 8 and 9, Appendix C to law of January 17, 1897, No. 9. Article 2, 
law of March 3, 1898, No. 47.] 

The Bank of Sicily is authorized to invest in Italian 
treasury bonds, without time limit, the sums received up 
to and including month of December, 1899, from the 
liquidation of "immobiHzations," provided that such 
sums be not over 2% million lire. 

The bonds thus acquired shall go to increase the work- 
ing fund, for which see article 32. 

ARTICLE 35- 
[Article 6, Appendix C to law of January 17, 1897, No. 9.] 

The Bank of Sicily is authorized to invest in government 
bonds, besides the ordinary working fund and the bonds 
applied to the surplus, a sum equal to that which, as a 
result of the Hquidation of the account current with the 
realty branch iazienda fondiaria) , shall be realized from 
"immobilizations," less the last grant to the said realty 
branch of 300,000 lire. 



286 



Law Relating" to Banks of Issue 

Section V. — Deposits in accounts current. 

ARTICLE 36. 

[Article 12, law of August 10, 1893, No. 449. Article 2, Appendix E to 
law of July 22, 1894, No. 339. Article 34, law of August 8, 1895, No. 486. 
Article 7, law of July 2, 1896, No. 253. Law of July 15, 1909, No. 492.] 

The banks of issue may receive deposits in accounts 
current bearing interest. When the total of such deposits 
exceeds : 

Lire. 

For the Bank of Italy 200, 000, 000 

For the Bank of Naples 80, 000, 000 

For the Bank of Sicily 25, 000, 000 

the institutions shall reduce their circulation by one-third, 
except in the case of the Bank of Sicily, for which see 

article 51. 

ARTICLE 37. 

[Article 12, law of August 10, 1893, No. 449. Law of July 15, 1909, No. 492.] 

The rate of interest on interest-bearing accounts current 
must not exceed one-third of the rate of discount. 

The minister of the treasury has the right to authorize 
the banks of issue to secure to interest-bearing deposits 
in current account a rate of interest not greater than 
three-fourths of the rate paid on deposits in the Postal 
Savings Bank. 

Section VI. — Issue of customs certificates and provincial 

revenue service. 

ARTICLE 38. 
[Article 7, Appendix I to law of July 22, 1894, No. 339.] 

Until further notice the banks of issue shall issue per- 
sonal certificates for the payment of import duties. 

These certificates are issued upon request against the 
payment, in state or bank notes, of the amount of the 

39781° — II 19 287 



National Monetary Commission 

certificate required plus the rate of exchange, determined 
on the base of the average rates for bills on foreign 
countries in the exchanges of Genoa, Milan, Naples, and 
Rome on the day previous to that on which the said cer- 
tificates are issued. 

The relations between the treasury and the banks of 
issue, resulting. from the provisions of the present article, 
are regulated by special agreement, approved by royal 
decree." 

The custom houses will accept said certificates in pay- 
ment of import duties instead of metallic currency, pro- 
vided that they are presented within ten days after their 
date of issue. 

ARTICLE 39. 
[Law of December 31, 1907, No. 804 (Appendix A).] 

The banks of issue may assume the duties of provincial 
revenue offices. 

They are authorized to make advances of overtax to 
the Provinces for which they have assumed such offices 
for a sum not greater than the total of two bimonthly 
payments. 

The sums thus advanced must be repaid within the 
maximum term of six months after the date of the loan, 
and a new advance can not be granted until the expiration 
of two months after the entire repayment of the original 
loan. 

« Royal decree of July 11, 1895, No. 416. 



288 



Law Relating" to Banks of Issue 

Section VII. — Provincial service of the Royal Treasury. 

ARTICLE 40. 
[Article 9, agreement of October 30, 1894, before mentioned.] 

The Bank of Italy, up to and including December 31, 
191 2, shall act as state treasury in all the Provinces of the 
Kingdom, subject to fixed rules ^ and regulations. 

ARTICLE 41. 

[Article 10, agreement of October 30, 1894, before mentioned.] 

The guaranty bond for the administration of the 
treasury is 90,000,000 lire in government bonds or bonds 
guaranteed by the State, calculated at tlie market value, 
less the deduction of one-twentieth of the value thus 
determined, the difference to be made good in the event 
of a drop in the market. 

In this guaranty bond is included the sum set aside 
by the Bank of Italy under articles 2 and 3 of the agree- 
ment entered into with the Government on October 30, 
1894, and approved by royal decree of December 10, 
1894, No. 533, reproduced in Appendix Q to the law of 
August 8, i8q5, No. 496. 

ARTICLE 42. 
[Article 12, agreement of October 30, 1894, before mentioned.] 

As a fund for the performance of the ordinary treasury 
service a permanent dotation of 30,000,000 lire is granted 
to the bank, with suitable provision in cases of extraor- 
dinary payments. 

When the fund at the disposition of the treasury for 
any reason becomes greater than 40,000,000 lire, or shows 

^Regulation approved by royal decree of Jan. 15, 1895, No. 16. 

289 



National M o n et ar y Commission 

a deficit of 10,000,000 lire, interest on the difference is 
due to the treasury or the bank, respectively, at a uni- 
form rate of 1.50 per cent free of all taxation. 

The permanent dotation made to the bank for the 
treasury service must be reintegrated every ten days in 
such a manner that its amount at the close of the loth, 
the 2oth, and the last days of the month shall not be 
less than 30,000,000 lire. 

ARTICLE 43. 
[Article 13, agreement of October 30, 1894, before mentioned.] 

, As long as the government notes remain inconvertible 
with metallic currency, and the exchange of notes of the 
banks of issue is regulated by the provisions of article 8 
(second and third paragraphs) of the present text, the 
moneys deposited in gold and silver in the vaults of the 
bank on account of the treasury must be kept in the 
same specie at the disposition of the treasury or as- 
signed to payments in coin to be designated by the 
treasury. 

Section VIII. — Special operations of the Bank of Naples — 
Savings branch, pawn office, custody of remittances and 
savings of Italian emigrants abroad. 

ARTICLE 44- 

[Article 12, law of August 10, 1893, No. 449. Articles 3 and 12, Appen- 
dix T to law of August 8, 1895, No. 486. Article i, law of July 7, 1901, 
No. 334.] 

The Bank of Naples may continue its pawn-office 
operations. 

The savings branch of the Bank of Naples has its own 
separate free capital, distinct from that of the bank and 
free from all claim by the creditors of the bank. 



290 



Law Relating to Banks of Issue 

The bank guarantees with its whole free capital all the 
obligations of the said branch in favor of all third parties. 

The branch is administered by the director-general of 
the bank, making use therefor of the offices and the 
employees of the bank. 

The bank may hold in interest-bearing accounts cur- 
rent, at a rate of interest not less than half the interest 
paid by the branch to the public, an amount which shall 
never be more than one-fifth of the total assets of the 
branch. 

The branch is authorized to invest gradually two- 
tenths of its deposits in agrarian credit operations in 
the southern Provinces and in Sardinia, under the law of 
July 7, 1901, No. 334, and in accordance with the regu- 
lation for the execution of the same,^ and to engage in 
such other operations as it may by special laws be author- 
ized to perform. 

All other assets of the branch must be invested exclu- 
sively in government bonds or bonds guaranteed by the 
State. 

ARTICLE 45. 

[Article i, law of February i, 1901, No. 24.] 

The Bank of Naples is authorized to collect, hold, 
invest, and transmit into the Kingdom the savings of 
Italian emigrants. For such purposes, and with the 
previous authorization of the treasury, it is empowered 
to make special agreements with banking houses and 
with the ministry of posts and telegraphs. 

« Regulation approved by royal decree of July 21, 1904, No. 536. 



291 



National Monetary Commission 

It shall also provide, with the permission of the treas- 
ury, for the establishment of agencies where the need 
of such agencies appears. 

The bank is authorized to assign up to 2,000,000 lire 
of its surplus, and, if necessary, of its free capital, for the 
establishment of a dotation fund for this service. 

The bank is forbidden to perform any operation of 
discount or subsidy for emigrants or any transactions 
except those indicated in the first paragraph of this pres- 
ent article. 

The regulation ° determines the precautions which the 
bank must take to protect itself against possible losses 
resulting from the fluctuation of exchange. 

ARTICLE 46. 
[Article 2, law of February i, 1901, No. 24.] 

Of the net profits of the service described in the pre- 
ceding article, one-half shall belong to the Bank of Na- 
ples, and is especially intended, in time, to bring the 
dotation fund up to the sum of 2,000,000 lire and reim- 
burse the surplus or the free capital of the bank for the 
sum withdrawn. 

The other half shall belong to the "emigration fund," 
in conformity with the rules established by the regula- 
tion. * 

When the 2,000,000 lire shall have been reimbursed 
to the surplus or the free capital of the bank, two-thirds 
of the net earnings shall belong to the said "emigration 
fund." 

« Regulation approved by royal decree of Dec. 29, 1901, No. 571, and 
modified by royal decree May 16, 1904, No. 323, and Feb. 22, 1906, No. 46. 

292 



Law Relating to Banks of Issue 

ARTICLE 47. 
[Article 4, law of February i, 1901, No. 24.] 

The Bank of Naples shall make a yearly report to the 
minister of the treasury on the conduct of the service 
described in articles 45 and 46. The report, with the 
comments of the permanent commission of inspection of 
banks of issue, shall be presented to Parliament by the 
minister of the treasury. 

Section IX. — Agrarian credit afid savings branch of the 

Bank of Sicily. 

ARTICLE 48. 
[Articles i and 2, law of March 29, 1906, No. 100.] 

An agrarian credit branch of the Bank of Sicily is estab- 
lished, to be known as "The Agrarian Credit of the Bank 
of Sicily." 

The funds necessary for this branch are made up as 
follows : 

(a) An initial fund of 3,000,000 lire furnished by the 
Bank of Sicily, to be withdrawn from the amount of the 
surplus available for investment. 

(6) An advance in interest -bearing account current 
granted by the Central Savings Bank "Vittorio Emman- 
uele" in Palermo up to the sum of 2,000,000 lire, and in 
no case exceeding two-tenths of the bank's saving deposits. 

(c) Three-tenths of the deposits in the savings branch 
of the Bank of Sicily as per article 49. 

In the fund described in (a) are included the amounts 
at present invested in agrarian credit operations transacted 
by the Bank of Sicily by virtue of the law of January 23, 
1887, No. 4276 (third series). 



293 



National Monetary Commission 

ARTICLE 49. 
[Article 4, law of March 29, 1906, No. 100.] 

The Bank of Sicily is authorized to act as a savings 
bank in the SiciHan Provinces. The operations of the 
savings branch are regulated by provisions of the law of 
March 29, 1906, No. 100, reproduced in the present text, 
and by the law of July 15, 1888, No. 5546 (third series). 

ARTICLE 50. 
[Article 5, law of March 29, 1906, No. 100.] 

The management of the savings branch shall be sepa- 
rate from that of the bank itself. Until such time as the 
savings branch shall have acquired from its annual earn- 
ings a free capital of its own amounting to at least one- 
tenth of its deposits, the bank of Sicily guarantees with 
its whole property all the obligations of the savings branch 
in favor of all third parties. 

ARTICLE 51. 

[Article 6, law of March 29, 1906, No. 100. Article 8, law of July 15, 1906, 
No. 383. Law of July 15, 1909, No. 492.] 

The Bank of Sicily may invest the initial fund, the 
advance in account current of the Central Savings Bank 
''Vittorio Emmanuele" of Palermo, and not more than 
three-tenths of the deposits in its savings branch, in agra- 
rian credit operations as per the terms of the law of March 
29, 1906, No. 100, and of the regulation for its execu- 
tion. " 

The other assets of the savings branch of the bank shall 
be invested as follows: 

(a) Not more than two-tenths in an interest-bearing 
account current with the Bank of Sicily. 

« Regulation approved by royal decree of Dec. 23, 1906, No. 731. 



294 



Law Relating to Banks of Issue 

(b) The remainder in bonds issued or guaranteed by the 
State. 

The sums deposited in account current with the Bank 
of Sicily are not included in the maximum limit of 
25,000,000 lire, for which see article 36 of the present text. 

Section X. — Other regulations. 

ARTICLE 52. 

[Article 56, law of June 25, 1906, No. 255.] 

The Bank of Naples shall contribute 4,500,000 lire, 

payable in thirty annual payments beginning with the 

fiscal year 1905-6, toward forming the free capital of the 

temporary department annexed to the Catanzaro branch 

of the Agrarian Credit Institution "Vittorio Emmanuele 

III," for which see article 17 of the law of June 25, 1906, 

No. 255. 

ARTICLE 53. 

[Article 18, law of July 15, 1906, No. 333.] 

The Bank of Sicily shall cooperate in the formation of 
the capital of the autonomous company for the erection 
and maintenance of the public warehouses for sulphur, for 
which see articles 2 and 18 of the law of July 15, 1906, 
No. 333. 

The amount of the quota shall be taken by the bank 

from its surplus. 

ARTICLE 54. 

[Articles 2 and 23, law of July 15, 1906, No. 333.] 

The 2,000,000 lire which the Bank of Sicily has advanced 
to the obligatory "Association" for the Sicilian sulphur 
industry, for the formation of the capital of the autono- 
mous Bank of Mining Credit for Sicily, shall be reimbursed 



295 



National Monetary Commission 

by the "Association" to the Bank of Sicily by install- 
ments within a period not longer than eight years, at the 
lowest rate of interest. 

The Bank of Sicily shall have a preferential claim on 
future profits on the sale of sulphur, as per article 13, No. 
2, of the law of July 15, 1906, No. 333, and on all assets of 
the before-mentioned Bank of Mining Credit. 

ARTICLE 55. 
[Article 17, law of July 15, 1906, No. 2>2>c)-\ 

The Bank of Sicily shall act gratuitously as the cashier 
of the obligatory "Association" of the Sicilian sulphur 
industry. 

Deposits of the "Association" shall bear the same rate 
of interest as that which the bank pays on savings deposits 
in interest-bearing accounts current. 

ARTICLE 56. 
[Article 3, law of July 15, 1906, No. 441.] 

The savings branches of the Bank of Naples and the 
Bank of Sicily are authorized to set aside 5 per cent of 
their respective annual net earnings to increase their 
quota of the amortization of land taxes due, respectively, 
in the continental provinces of the former Kingdom of 
Naples and in Sicily. 

ARTICLE 57. 

[Article 25, law of April 30, 1874, No. 1920. Article 9, before-mentioned 
agreement of October 30, 1894.] 

The state treasury, except as under the agreement of 
October 30, 1894, entered into with the Bank of Italy 
regarding its treasury service, may deposit any amount 



296 



Law Relating- to Banks of Issue 

with the branches and subbranches of any institution of 
credit authorized to issue notes, and may demand pay- 
ment in fuU or in part from one or more branches or sub- 
branches of the same institution. This service shall be 
rendered to the State free of charge. 

ARTICLE 58. 
[Article 12, law of August 10, 1893, No. 449.] 

Banks of issue are forbidden to engage in new land- 
credit operations. 

ARTICLE 59. 

[Article 12, law of August 10, 1893, No. 449.] 

Any unsecured operation in account current is for- 
bidden, whether at the time of opening an account or 

afterwards. 

ARTICLE 60. 

[Article 12, law of August 10, 1893, No. 449.] 

The bonds, securities, and movable property, which in 

their nature are different from those described in Title IV, 

and which have come into the possession of the banks as a 

result of some of their credits, must be liquidated within 

two years. The banks m5,y, however, accept mortgages 

on immovable property for overdue credits, but they 

must liquidate such operations within the term of three 

years. 

ARTICLE 61. 

[Article 14, law of August 10, 1893, No. 449.] 

At the end of every fiscal year the new overdue credits 
must pass to the "loss" column, and the amounts recov- 
ered must be credited to the year in which they have 
been wholly or partly collected. 



297 



National Monetary Commission 

ARTICLE 62. 
[Article 14, law of August 10, 1893, No. 449.] 

Banks which shall engage in operations not permitted 
by law are liable to a tax equal to triple the respective 
rate of discount, reckoned on the total amount of the 
illegal business transacted, and for the full duration of 
such operations. 

Title V. — Mutual Redemption of Notes Among the 

Several Banks. 

ARTICLE 6 
[Article 5, law of August 10, 1893, No. 449.] 

Each bank must accept in payment notes of the other 
banks wherever these have a branch or a representative. 
Such notes must be received also for regular operations in 
Provinces where they have legal circulation. 

During the legal circulation of notes the rules for their 
exchange among the banks are established by a royal 
decree to be presented to Parliament for approval.'^ 

ARTICLE 64. 
[Article 14, agreement of October 30, 1894, before-mentioned.] 

During the legal currency of notes, and while the 
Bank of Italy performs its treasury service, said bank may 
not demand of the other banks of issue either the exchange 
or the redemption of their notes except in an amount 
equal to the amount of the notes of the said Bank of Italy 
which may be held by the other institutions. 

« Royal decree of February 27, 1894, No. 58, presented on the same day 
to the Chamber of Deputies (see acts of Parliament bills No. 318 and 318-a), 
but not enacted into law. 



298 



Law R el ating to Banks of Issue 

Title VI. — Liquidation of the Banca Romana. 

ARTICLE 65. 

[Article 25, law of August 10, 1893, No. 449. Article 11, before-mentioned 
agreement of October 30, 1894. Articles 28 and 29, law of August 8, 1895, 
No. 486.] 

The liquidation of the Banca Romana is assumed by 
the Bank of Italy at its own risk and peril. 

The time for the liquidation of the ''immobilizations" 
involved in the liquidation of the Banca Romana is twenty 
years, beginning with January i, 1894, ^^^ ^^ the rate of 
one -fifth of the total every four years. 

The State is not responsible for losses which may result 
from such liquidation even if such losses shall exceed the 
entire amount to be contributed by the Bank of Italy for 
such liquidation, as per the term.s of article 67. 

ARTICLE 66. 
[Article 29, law of August 8, 1895, No. 486.] 

The acts of sale to third parties of real property pos- 
sessed by the Banca Romana on October i, 1894, ^^^ 
the transference to third parties of credits already existing 
on November 23, 1893, limited to the value of said credits, 
are subject only to a fixed registration tax of 3.60 lire. 

Such preference shall be without effect after December 
31, 1912. 



299 



National M o n et ar y Commission 

ARTICLE 67. 

[Article 29, law of August 10, 1893, No. 449. Article 2, aforesaid agree- 
ment of October 30, 1894. Article 8, aforesaid agreement of November 
28, 1896. Articles i and 2, aforesaid agreement of November 29, 1908.] 

The Bank of Italy shall pay each year 2,000,000 lire on 
account of the liquidation of the Banca Romana to cover 
losses resulting from the said liquidation. 

If that shall be insufficient, the deficit shall be provided 
for from the extraordinary reserve, for which see the 
aforesaid agreement of November 29, 1908. 

The advances due from the Bank of Italy for the liqui- 
dation of the Banca Romana shall not bear interest in 
favor of the former. 

ARTICLE 68. 
[Article 10, law of March 3, 1898, No. 47.] 

The circulation of notes of the Bank of Italy not covered 
by metallic reserve but representing the debit of the 
account current of the Banca Romana in liquidation is not 
subject to tax. 

Such circulation must never exceed the amount which 
was registered in said account current on October i, 1896,^ 
and it must be reduced in proportion to the legal liquida- 
tion and amounts set aside for that purpose. 

ARTICLE 69. 

[Article 30, law of August 10, 1893, No. 449, and articles 28 and 29, law of 

August 8, 1898, No. 486.] 

The Bank of Italy shall institute and prosecute at its 
own expense all actions against the functionaries and ad- 
ministrators of the Banca Romana, as such, and all others 
who may be found in any way responsible for the losses of 
the said Banca Romana. 

a 720,295.43 lire. 



300 



Law Relating to Banks of Issue 

Title VII. — Liquidation of Realty Credits of Banks 

OF Issue. 

Section I. — Special regulations for the department of credit 
foncier or realty credit of the former Banca Nazionale nel 
Regno and of the Bank of Sicily. 

ARTICLE 70. 
[Article i, law of July 7, 1905, No. 349.] 

The realty credit departments in liquidation of the 
former Banca Nazionale nel Regno and of the Bank of 
Sicily are empowered to convert their actual loans, not 
only into 3.50 per cent realty bonds, but also by the issue 
of new realty bonds bearing interest at 3.75 or 3.25, or 
3 per cent net, with the retirement of those actually in 
circulation, saving the obligation on the borrowers of the 
Bank of Sicily for the payment of contributions fixed by 
article 95. 

The loans converted must be extinguished in a period 
of tirue not greater than fifty years from the day of the 
contract or the act of conversion. In no case may the 
extinction of loans be protracted beyond the year i960. 

The mortgages already registered to guarantee the 
loans preserve their validity and their grade, without need 
of a special reserve, to guarantee the capital, the interest, 
and incidentals of the loans substituted, including the 
contributions, for which see article 95. 

The realty credit administration may have the acts 
of conversion marked on the margin of mortgage records 
remaining in effect to guarantee the loans. 

For the conversion of loans the banks will endeavor, so 
far as possible, to give preference to those guaranteed by 

301 



National Monetary Commission 

farm properties and to those for small sums, always with 
due regard to the order of applications. 

ARTICLE 71. 
[Article 2, law of July 7, 1905, No. 349.] 

Any difference between the redemption at par of the 
bonds in actual circulation and the selling price of the 
new ones shall be charged to the borrower; but, by a pre- 
vious special agreement with the said borrower, it may be 
advanced by the realty credit administration. 

For such advances the realty credit branches are au- 
thorized to dispose of the ordinary reserve fund provided 
for by article 11 of the law (text) of February 22, 1885, No. 
2922. The realty credit of the former Banca Nazionale 
nel Regno may, moreover, dispose of the special reserve 
fund, for which see article 9 of the Appendix A to the 
law of January 17, 1897, No. 9, modified by article 13 
of the law of July 7, 1905, No. 349. 

ARTICLE 72. 
[Article 15, law of July 7, 1905, No. 349.] 

Independently of the conversion of the loans, the realty 
credit departments in liquidation of the former Banca 
Nazionale nel Regno and of the Bank of Sicily may 
always proceed to the conversion of their bonds, as per 
the provision of article 38, paragraphs 1,3, and 5, of the 
law of July 17, 1890, No. 6955 (3d ser.). 

The conversion may be effected by the issuance of new 
realty bonds at the rate of 3.75 and 3.50 per cent interest. 

The reduction of the interest on the corresponding 
bonds must be effected within a period not longer than 
one year from the date of the conversion. 

302 



Law Rel ating to Banks of Issue 

Notice of the intended conversion must be published in 
the Official Gazette of the Kingdom and in all the period- 
icals for legal announcements, and must be repeated twice 
ten days apart. 

After one month from the last publication the bonds in 
circulation can no longer be presented for redemption, and 
the interest will be calculated at the rate of the new 
bonds. 

While the conversion is being effected, all the provisions 
contained in the present text in favor of debtors of the 
realty credit administration will be applicable to the loans, 
including the right to extend the loans, as per article 70. 

ARTICLE 73. 

[Article 6, agreement of November 28, 1896, before cited. Article 5, 
Appendix C to law of January 17, 1897, No. 9.] 

, For possible monetary needs, the department of realty 
credits in liquidation of the former Banca Nazionale nel 
Regno and that of the Bank of Sicily may obtain, respec- 
tively, from the Bank of Italy and from the Bank of 
Sicily, advances on deposits of government bonds or bonds 
guaranteed by the State, £iccording to article 29, at a 
favorable rate of interest, provided it be not less than 
3.50 per cent per annum. 

For the realty credit department of the former Banca 
Nazionale nel Regno, the said advances may be made 
also on bonds of the dotation fund, disposable by the 
terms of article 76, and up to one -half of their value. 



39781°— II 20 303 



National Monetary Commission 

ARTICLE 74. 

[Article 6, agreement of November 28, 1896, before cited. Article 5, 
Appendix C to law of January 17, 1897, No. 9.] 

The banks are not subject to tax on internal advance 
operations described in the preceding article. 

ARTICLE 75. 

[Article 7, agreement of November 28, 1896, before cited. Article 7, 
Appendix C to law of January 17, 1897, No. 9. Article 12, law of March 
3, 1898, No. 47.] 

The real property actually in the possession of the realty 
credit branch in liquidation of the former Banca Na- 
zionale nel Regno and that of the Bank of Sicily, or 
which may come into their possession by the terms of 
article 104, computed at balance values, shall pass respec- 
tively to the Bank of Italy and the Bank of Sicily with 
exemption from all taxes. 

ARTICLE 76. 
[Article 8, agreement of November 28, 1896, before cited.] 

The dotation fund of the realty credit branch in liqui- 
dation of the former Banca Nazionale nel Regno shall 
maintain the constant proportion of one -tenth of the 
actual circulation of bonds. 

The Bank of Italy shall liquidate on account of the 
realty credits the excess of the dotation fund. 

ARTICLE 77. 
[Article 3, law of January 17, 1897, No. 9.] 

If the provision of articles 73 and 76 shall not suffice to 
guarantee the transactions of the realty credit branch in 
liquidation of the former Banca Nazionale nel Regno and 
of that of the Bank of Sicily, the deficits shall be charged 



304 



Law Relating to Banks of Issue 

to the balances for the corresponding fiscal year of the 

respective banks, 

ARTICLE 78. 

[Article 16, law of July 7, 1905, No. 349.] 

The rules for carrying out the provisions of the law of 
July 7, 1905, No. 349, relative to the conversion of loans, 
are fixed by appropriate regulation."^ For the application 
of the other provisions of the same law the rules in force 
are continued in the regulation of February i, 1891, No. 66. 

Section II. — Special regulations for the realty credits of the 

Bank of Naples. 

ARTICLE 79. 
[Article i, law of July 7, 1905, No. 350.] 

For the department of realty credits in liquidation of the 
Bank of Naples beginning with January i , 1906, the interest 
on loans is reduced to 3.75 per cent, except for the contribu- 
tions as per article 95. Power is granted to request and 
to allow the extension of the amortization for a period 
of time not greater than fifty years from the date of new 
contracts, with the benefits and rules of the present law, 
save as regards the obligations of borrowers for the pay- 
ment of contributions as per article 95, and the mainte- 
nance of the existing law relating to the interest, the 
amortization of the realty bonds, and their guarantees. 

In no case may the extinction of the loans be extended 
beyond i960. 

The mortgages already registered to guarantee the 
loans shall preserve their validity and their grade, without 

o Regulation approved by royal decree of November 19, 1905, No. 547. 



305 



National Monetary Commission 

need of a special reserve, to guarantee the capital, the 
interest, and incidentals of the loans substituted, includ- 
ing the contributions, for which see article 95. 

The realty credit department is entitled to mark the 
acts of conversion on the margin of the mortgage records 
remaining in effect to guarantee the loans. 

ARTICLE 80. 

[Article i, Appendix B to law of January 17, 1897, No. 9. Law of July 2, 

1908, No. 320.] 

Revoking article 6, paragraph 5, of the law of February 
22, 1885, No. 2922, bonds issued by the credit foncier of 
the Bank of Naples, beginning January i, 1897, shall bear 
interest annually at 3.50 per cent, exempt from any im- 
post or tax, present or future. 

The old bonds of the realty credit department of the 
Bank of Naples, bearing gross interest at 5 per cent, shall 
be recalled and cancelled, and in exchange for them shall 
be issued new bonds of equal nominal value, bearing in- 
terest annually at 3.50 per cent, exempt from all imposts 
and taxes, present and future, payable semi-annually on 
the ist of April and on the ist of October of each year. 

The old bonds not presented in exchange for others of 
the new issue before July 31, 1910, shall be considered as 
outlawed, and their value shall go to the profit of the credit 
foncier. 

The interest and amortization of the new bonds are 
guaranteed by the State. 



306 



Law Relatin g to Banks of Issue 

ARTICLE 8i. 

[Article 2, Appendix B to law of January 17, 1897, No. 9. Article i, law of 

July 7, 1905, No. 350.] 

The debt represented by the bonds of the realty credit 
department of the bank, in circulation on January i, 1897, 
shall be redeemed within the period of fifty years begin- 
ning from the same date, by means of a constant annuity, 
including the net interest at 3.50 per cent, payable in 
two semiannual installments of 1.75 lire each, and of the 
proportion of the amortization.^ 

The redemption of the bonds shall be by semi-annual 
drawings on February i and August i of each year. If 
the value of the bonds is below par, the bank has power 
to substitute, for one-half of the redemption by lot, bonds 
bought direct on the market. 

The loans made by the bank must be reduced according 
to the conditions under which they were granted, with the 
modifications effected by article 79 of the present text. 

ARTICLE 82. 
[Article 3, Appendix B to law of January 17, 1897, No. 9.] 

Revoking article 8, paragraph 9, of the law (Text) of 
February 22, 1885, No. 2922, governing realty credits, 
the bonds of the realty credit department of the Bank of 
Naples are accepted for the redemption of loans at a valua- 
tion determined for each quarter, based upon the average 
value of the bonds for the preceding quarter in the prinicpal 
exchanges of the Kingdom, increased by 50 lire. If the 
average value determined and applicable shall exceed 450 
lire, the bonds are accepted at par value. 

a The table of amortization has been approved by ministerial decree 
of Apr. 30, 1898, published in the Official Gazette of July 6, 1898, No. 150. 



307 



National Monetary Commission 

ARTICLE 83. 
[Article 14 of law of July 7, 1905, No. 350.] 

All bonds of the department of realty credits in liquida- 
tion of the Bank of Naples which originated either from 
investments on capital account or from investments of 
profits from annual savings in management constitute a 
fund the interest from which forms part of the ordinary 
balance, and is at the free disposal of the department of 
realty credits. 

ARTICLE 84 
[Article 15, law of July 7, 1905, No. 350.] 

All amounts obtained on capital account during every 
six months over and above the obligatory half-yearly 
amortizations of bonds, and all those resulting from the 
savings in management at the end of each fiscal year, 
must be invested in government bonds or bonds guaran- 
teed by the State to be included in the said fund, as per 
preceding article, on capital account and on account of 
annual savings in management, respectively. 

ARTICLE 85. 
[Article 16, law of July 7, 1905, No. 350.] 

When the investment and reinvestment in bonds pre- 
scribed in the preceding article, in view of their circula- 
tion, their net return, and the annual burdens arising 
from the realty bonds in circulation, result in a loss to the 
credit foncier, they shall be suspended, with the previous 
authorization of the minister of the treasury, and the 
deficit shall be made up by the retirement from the 
circulation and the cancellation of the said realty bonds. 

The withdrawal of the realty bonds from circulation 
shall be effected by means of direct purchase if quoted 

308 



Law Relating to Banks of Issue 

below par, or by redemption of same by lot, in addition 

to the half-yearly obligatory amortization, if quoted at 

or above par. 

ARTICLE 86. 

[Article 17, law of July 7, 1905, No. 350.] 

When it appears that even in the case of bonds already 
forming part of the said fund (see article 83), in view of 
the burdens arising from the realty bonds in circulation, 
it would prove profitable for the realty credit depart- 
ment to anticipate their redemption by proportionately 
hastening the withdrawal of the realty bonds, such bonds 
may, with authorization of the minister of the treasury, 
be gradually redeemed, and their income be applied 
either to increase the direct purchase of realty bonds or 
to increase the drawings, as per the preceding article. 

ARTICLE 87. 

[Article 12, law of July 7, 1905, No. 350.] 

The Bank of Naples shall provide for the increment of 
the ftmd of 15,000,000 lire (for which see article 12 of 
the law of July 7, 1905, No. 350) by semi-annual and 
quarterly reinvestments at compound interest, in order 
to reimburse itself for the amount of the account cur- 
rent of its realty credit department, closed December 31, 

1896. 

ARTICLE 88. 

[Article 8, law of January 17, 1897, No. 9. Article 13, law of July 7, 1905, 

No. 350.] 

The tax on movable property and the circulation tax 
on bonds of the credit foncier in liquidation of the Bank 
of Naples are, respectively, 15 lire per centum and 1.80 



309 



National Monetary C ommis s io 



n 



lire per thousand, and are subscribed by the State to the 
said realty credit department. To the latter will be 
transferred also all such amounts as are included in the 
annual dues of the borrowers for tax subscriptions. 

ARTICLE 89. 
[Article 5, Appendix b to law of January 17, 1897, No. 9.] 

The Bank of Naples acts as cashier for its realty credit 
department. Therefore, in case of need, the bank may 
make advances on Italian Government bonds or bonds 
guaranteed by the State in possession of the realty credit 
department, at a favorable rate of interest, provided it be 
not less than 3.50 per cent per annum. For such internal 
operations of advances the bank is not liable to a tax. 

ARTICLE 90. 
[Article i8, law of July 7, 1905, No. 350.] 

Any annual deficits of the liquidation shall be charged 
to the realty credit department. 

When all the assets in bonds, immovable property, 
and ordinary credits of the realty credit department have 
been exhausted, the said deficits shall be charged to the 
balance of the corresponding fiscal year of the bank. 

The assets, of any kind, of the realty credit department 
which may remain available after the extinction of the 
realty bonds shall become the property of the bank. 

ARTICLE 91. 
[Article 20, law of July 7, 1905, No. .350.] 

The rules for the execution of the law of July 7, 1905, 
No. 350, are fixed by regulation approved by royal decree.^ 

« Royal decree of Nov. 19, 1905, No. 553. 



310 



Law Relating- to Banks of Issue 

Section III. — Regulations common to ths realty credit 
administrations of the three hanks. 

ARTICLE 92. 

[Article 3, law of July 7, 1905, No. 349. Article 2, law of July 7, 1905; 

No. 350.] 

Neither unpaid semi-annual dues nor interest on de- 
ferred payments, nor legal and other incidental expenses, 
shall constitute an obstacle to the conversion of actual 
loans in accordance with the provisions contained in the 
two preceding sections. 

The realty credit administrations shall take measures 
to systematize and secure payment of such debt and of 
the sum advanced according to article 7 1 , and they are 
further authorized to require second mortgages. 

The second mortgage, agreed upon by the borrower, 
shall rank immediately after the first mortgage, or at 
least in a way satisfactory in the judgment of the realty 
credit department. 

ARTICLE 93. 

[Article 4, law of July 7, 1905, No. 349. Article 3, law of July 7, 1905, 

No. 350.] 

The amount of the debt consisting of the unpaid semi- 
annual dues, of the interest on deferred payments, of 
legal expenses and other incidentals, of sums advanced in 
conformity with article 71, and of taxes on movable 
property on account of the realty credit department of 
the Bank of Naples, shall constitute a separate capital 
sum which must be extinguished in a period of time not 
exceeding that of the amortization of the converted 
loan added to the corresponding tax on giovable property. 



'311 



National Monetary Commission 

ARTICLE 94. 

[Article 5, law of July 7, 1905, No. 349. Article 4, law of July 7, 1905, 

No. 350.] 

No tax will be due to the treasury for acts and con- 
tracts of conversion of actual loans, for requisite mortgage 
entries for acts and contracts in systematization of the 
loan, or for the second mortgages mentioned in the two 
foregoing articles. 

The realty credit departments of the banks of issue 
shall in no case partake of the compensations mentioned 
in article 3 of the law of July 4, 1896, No. 183,*^ arising 
from the conversion of the old loan. 

Likewise, in application of article 3, last paragraph, 

of the same law of June 4, 1896, no tax shall be due to 

the treasury. 

ARTICLE 95. 

[Article. 6, law of July 7, 1905, No. 349. Article 5, law of July 7, 1905, 

No. 350.] 

For the loans which shall be converted under the 
terms of the two preceding sections the borrowers shall 
pay to the realty credit department for dues to the state 
treasury (except in the case of the realty credit depart- 
ment of the Bank of Naples, for which see provision 
of article 88) certain annual contributions as imposts on 
movable property, as subscription to taxes of whatever 
kind which may be payable to the finances of the State 
for the contract of the loan, for the issue and circulation 
of the mortgage bonds, and for all the acts and formali- 
ties mentioned in article i of the law of June 4, 1896, 
No. 183. 

« Modified from article 4, law of Dec. 22, 1905, No. 592. 



3I2« 



Law Relating" to Banks of Issue 

The contribution to the impost on movable property 
shall consist of an assessment of lo lire on every loo 
lire interest on loans not exceeding 10,000 lire, and 12 
lire in the same proportion on loans greater than such 
sum. 

The subscription to the taxes as above shall be 8 
centesimi per 100 Hre of loans not exceeding 10,000 
lire and 10 centesimi per 100 lire for others. 

The second of these contributions shall be tin-ned over 
by the realty credit administrations of the former Banca 
Nazionale nel Regno and the Bank of Sicily to the proper 
registration offices, and the other to the state treasury, 
according to article 22 of the abovementioned law. 

When, by amortization or advance payments, the 
loan shall be reduced to one-half, the rate of the taxes 
shall be successively reduced to one-half and calculated 
on the capital amount still due. 

ARTICLE 96. 

[Article 7, law of July 7, 1905, No. 349. Article 6, law of July 7, 1905, 

No. 350.] 

Modifying article 3 (second paragraph) of the law of 
June 4, 1896, No. 183," in the case of advance payment 
in whole or in part of the debt arising out of the loan, 
the realty credit branches of the banks of issue shall be 
entitled, under special uniform conditions, to collect a 
commission fee up to 5 per cent of the sum refunded before 
the date fixed by the new contract. 

o- Modified by article 4 of the law of Dec. 22, 1905, No. 592. 



313 



National Monetary Commission 

ARTICLE 97. 

[Article 8, law of July 7, 1905, No. 349. Article 7, law of July 7, 1905, 

No. 350.] 

For loans to be converted not exceeding 20,000 lire, the 
subscription under article 95 of the present text shall cover 
all the stamp taxes due for the certificates of the entry 
and transcription of mortgages and all such payments, 
and in general for all the acts and documents which, 
upon direct requisition of the realty credit branches, may, 
in accordance with the regulations and precautions estab- 
lished by statute, be issued by the proper public officers 
or notaries with the object of legalizing the demands for 
the conversion of the said loans. 

ARTICLE 98. 

[Article 9, law of July 7, 1905, No. 349. Article 8, law of July 7, 1905, 

No. 350.] 

The use of the 50-centesimi stamp for procedures under 
article 21 of the law of June 4, 1896, No. 183, is hereby 
further extended to all proceedings instituted by the 
realty credit branches, including incidental judgments, 
even when they relate to questions of merit, in all the 
degrees of jurisdiction, and to judgments both of appor- 
tionment and liquidation and all incidental proceedings, 
as also to proceedings for taking possession of real prop- 
erty adjudged to the said realty credit branches following 
sale at auction instituted either by the realty credit 
branches or others. 



314 



Law Relating" to Banks of Issue 

ARTICLE 99. 

[Article 10, law of July 7, 1905, No. 349. Article 9, law of July 7, 1905, 

No. 350.] 

A reduction of one-half is hereby made in the fees 
fixed by the notary tariff now in force for the stipula- 
tion of contracts of conversion of loans, as per the pro- 
visions of the following sections. 

ARTICLE 100. 

[Article 11, law of July 7, 1905, No. 349. Article 10, law of July 7, 1905, 

No. 350.] 

Representatives of the realty credit branches of the 

banks of issue, upon the presentation of tax valuation 

records referring to specified properties, may search the 

tax registers and obtain, without charge, such memoranda 

and notes as are necessary for performing their appointed 

duties. 

ARTICLE loi. 

[Article 12, law of July 7, 1905, No. 349. Article 10, law of July 7, 1905, 

No. 350.] 

The reduction under article 31 of the law of June 4, 

1896, No. 183, to one-fourth of the registration taxes for 

acts of transfer and conveyance therein specified, arising 

from loans arranged up to December 31, 1895, shall be 

extended, in favor of the realty credit branches, to 

December 31, 19 16. 

ARTICLE 102. 

[Article 2, Appendix S to law of August 8, 1895, No, 486.] 

The realty credit branches of the banks of issue have 
the right to surrender their own credits to other institu- 
tions of realty credit, ordinary or private, on such con- 
ditions as they may deem convenient, wholly extinguishing 
their respective credit, as the law provides. 



31S 



National Monetary Commission 

ARTICLE 103. 
[Article 3, Appendix S to law of August 8, 1895, No. 486.] 

No payment or compensation is due to the treasury in 
case of anticipated redemption of a realty loan made 
through the contraction of a new mortgage loan with 
other institutions, provided that the amount and the time 
of the new loan be not less than the amount still due and 
the time still to run. 

ARTICLE 104. 
[Article 4, Appendix S to the law of August 8, 1895, No. 486.] 

When the realty credit department of a bank of issue 
becomes the receiver of mortgaged real property, the 
redemption of the remaining debt may be deferred with 
the proviso that the half-yearly amortization be continued 
for the time of the original loan. 

In case of sale, the price must be invested in the extinc- 
tion of the remaining debt and the redemption of the cor- 
responding number of realty bonds. When such price is 
not sufficient, the institution must supply the difference. 
The provisions of this present article are not applicable to 
the realty credit department of the Bank of Naples, the 
realty-bond business of which is regulated by articles 80, 
81, 82, 85, and 86. 

ARTICLE 105. 

[Article 5, Appendix S to law of August 8, 1895, No. 486.] 

The power granted to the receiver by article 36 of the 
law of July 17, 1890, No. 6955, may be also exercised by 
the buyer of immovable property under a judgment 
granted to the realty credit department of a bank of issue. 



316 



Law Relatin g to Banks of Issue 

The term of fifteen days, as specified in said article 36, 
is extended to thirty days in favor of the receiver who 
intends to profit by the realty loan granted to the dis- 
possessed debtor. 

ARTICLE 106. 

[Article 6, Appendix S to the law of August 8, 1895, No. 486. J 

After the third attempt at sale by auction the realty 
credit branches of the banks of issue may request from 
the Civil Tribunal the authority to sell by private agree- 
ment properties subject to expropriation and to foreclosure 
for a sum not less than that bid at the last auction. 

This provision can not be impugned except for nullity 
of form, and such impugnation shall not suspend the sale. 

The price shall be paid to the bank, which shall deduct 
what is due to it, in conformity with article 23 (F) of 
the text of the law governing realty credit, approved by 
royal decree of February 22, 1895, No. 2922, holding the 
remainder in trust to await apportionment. 

ARTICLE 107. 
[Article 7, Appendix S to the law of August 8, 1895, No. 486.] 

For the appointment, the recall, and the surrogation of 
the sequestrator (for which see (B), article 23, of the said 
text of the law governing realty credits) , and for the bond 
which may be required from him, the president of the 
tribunal must conform to the proposals of the realty 
credit branches of the banks of issue. 



317 



National Monetary Commission 

TiTivE VIII. — Supervision of CircuIvATion and Banks 

OF Issue. 

Section I. — -General regulations. 

ARTICLE io8. 

'[Article 15, law of August 10, 1893, No. 449, Articles 26 and 27, law of 
August 8, 1895, No. 486. Article i, Appendix P to the law of August 
8, 1895, No. 486. Article 12, Appendix T to the aforesaid law.] 

The supervision of banks of issue, realty credit branches, 
the saving branch of the Bank of Naples, and the liquida- 
tion of the Roman Bank is vested in the treasury. 

article 109. 
[Article 4, Appendix P to the law of August 8, 1895, No. 486.] 

The necessary expenses of the supervision of the banks 
of issue shall be borne by the banks theraselves. 

Section II. — Permanent commission. 

ARTICLE no. 

[Article 3, Appendix P to the law of August 8, 1895, No. 486. Law of 
December 31, 1907, No. 804, Appendix A. Law of June 30, 1908, No. 
304-] 

A permanent commission is appointed for the supervi- 
sion of the banks of issue and of the state and banking 
circulation, under the presidency of the. minister of the 
treasury. 

The said commission is composed of four senators and 
four deputies elected by the respective chambers, with 
the proviso that in case of the dissolution of the Chamber 
of Deputies, the deputies shall remain in office until a new 
election; also of five members appointed by royal decree, 



318 



Law Relating to Banks of Issue 

upon the recommendation of the minister of the treasury 
and with consent of the council of ministers. 

The members appointed by the Government are a 
president or councillor of the state council, a president 
or councillor of the court of accounts, the director-general 
of the treasury, the inspector-general for the supervision 
of the banks of issue, the treasury services, and the board 
of sanitation of the city of Naples, the director-general of 
credit and estimate in the ministry of agriculture, indus- 
try, and commerce. 

The commission shall elect a vice-president from its own 

number. 

ARTICLE III. 

[Article 26, law of April 7, 1881, No. 133. Article 27, law of August 8, 
1895, No. 486. Article 5, Appendix P to the same law.] 

The permanent commission for the supervision of cir- 
culation and the banks of issue shall, upon the request of 
the minister of the treasury, give its advice: 

1 . On all provisions and regulations concerning methods 
and guarantees: 

(a) For exchange operations, withdrawal and cancel- 
lation of government notes, and the substitution of new 
notes, which must be passed upon by the court of accounts. 

(6) For the custody of state . notes intended for the 
working fund. 

(c) For the acceptance of bank notes by the state treas- 
ury when they shall have ceased to have legal circulation, 
as per article lo. 

2. On the rules to be established in regard to the ex- 
change of bills when the new regulations contained in 
article 8 shall have been issued. 

39781°— II 21 319 



National Monetary Commission 

3. On the form of the decennial reports of the condition 
of each bank, which shall show separately the various 
kinds of assets and liabilities which form the free capital 
of the concern. 

4. On the special agreement to be entered into among 
the banks, subject to the approval of the Government, for 
the getting rid of notes of other institutions. 

Moreover, the commission may be invited to give its 
advice on all measures regulating the manufacture, sup- 
ply, custody, withdrawal, and cancellation of bank notes, 
and determining the quantity and use of notes in the 
working fund as per article 4. 

ARTICLE 112. 

[Article 6, Appendix P to the law of August 8, 1895, No. 486. Article 4, 
law of February i, 1901, No. 24.] 

The permanent commission shall, upon the request of 
the minister of the treasury, extend its examination to 
include the following: 

(a) The proposed amendments of the charter of the 
Bank of Italy within the limits of the laws. 

(6) Amendments that may be deemed necessary to 
the statutes and by-laws of the banks of Naples and 
Sicily. 

(c) And, in general, all the provisions necessary for the 
execution of the present law. 

The report, as per article 44 of the present text, shall 
be referred to the commission for its opinion. 



320 



hi aw R el at in ^ to Banks of Issue 

Section III. — Permanent supervision. 

ARTICLE 113. 

[Law of December 31, 1907, No. 804.] 

The permanent supervision of the banks of issue and 
their branch managements is undertaken by the minister 
of the treasury through the inspectorate-general. 

ARTICLE 114. 

[Article 8, Appendix P to the law of August 8, 1895, No. 486.] 

The board of directors of the Bank of Italy shall, from 
time to time, and with sufficient notice, advise the min- 
ister of the treasury of the date and hour fixed for the 
general meetings of shareholders, for the meetings of the 
superior council, and of the liquidation committee of the 
Banca Romana, inclosing a programme of the subjects to 
be discussed at such meetings. 

Similar communications must be made by the banks 
of Naples and Sicily in regard to the meetings of the 
general council and central council of administration. 

At the sessions of the above-mentioned councils and 
commissions there shall be present a government in- 
spector or, in his stead, an official delegated by the min- 
ister of the treasury with power to suspend the execution 
of decisions that may in his opinion be contrary to the 
laws, regulations, and statutes. 

Immediate notice of such suspensions must be given 
to the minister of the treasury, who will either approve 
or revoke the same, giving due notice to the banks in- 
terested, within five days from the date of suspension. 
If the suspension meets with the minister's approval, he 
shall have the power to annul the decision when the same 



321 



National Monetary Commission 

is recognized as contrary to the laws, regulations, and 

statutes. 

ARTICLE 115. 

[Article 9, Appendix P to the law of August 8, 1895, No. 486.] 

When an inspector or a delegate, as in the preceding 
article, shall have failed to suspend a decision which the 
minister of the treasury deems to be contrary to the laws, 
regulations, and statutes, the minister may directly sus- 
pend the same within five days from the date of the 
meeting, basing such action upon the report communi- 
cated by the inspector and giving notice thereof to the 
bank interested. 

After the suspension the minister shall have the power 
to annul the said decision if the same be found contrary 
to the laws, regulations, and statutes. 

ARTICLE 116. 
[Article 10, Appendix P to the law of August 8, 1895, No. 586.] 

The inspector or delegate (see the foregoing article) 
must transmit, within two days, to the minister of the 
treasury a report on the matters discussed and on the 
decisions taken at the meeting at which he has been 
present. 

Within the same time the board of directors of the 

bank shall transmit an abstract of the matters discussed, 

as well as a copy of the minutes of the meeting duly 

verified. 

ARTICLE 117. 

[Article 11, Appendix P to the law of August 8, 1895, No. 486.] 

The inspectorate-general shall examine the annual 
balances of the banks of issue and, where deemed nec- 
essary, verify the correspondence of said balances with 
the records of the institutions. 



322 



L,aw Relating to Banks of Issue 

For this purpose the banks must promptly transmit 
to the inspectorate their balances and profit and loss 
accounts, and they must furnish all such information as 
may be required of them except in the case of the Bank 
of Naples and its realty credit department as per article 
135. 

ARTICLE 118. 
[Article 12, Appendix P to the law of August 8, 1895, No. 486.] 

Reports on the operations of each bank, compiled in 
accordance with the forms approved by special royal 
decree, shall be handed in on the loth, 20th, and the 
last day of each month. 

They shall be transmitted to the treasury at the latest 
within eight days after date and must be signed by the 
director-general and by the chief of the general account- 
ing division of the bank. 

The banks are obliged to furnish to the inspectorate- 
general all required information in connection with the 
reports received. 

The inspectorate shall verify from time to time the 
correspondence between the reports and the records of 
the bank. 

The condition of each bank shall be published by the 
inspectorate-general in the Official Gazette of the Kingdom. 

ARTICLE 119. 
[Article 13, Appendix P to the law of August 8, 1895, No. 486.] 

The bills of exchange on foreign countries, included in 
the reserve of the banks of issue, in conformity with 
article 11, must be verified at short intervals by the 
inspectorate-general in order to ascertain their value 



323 



National Monetary Commission 

and to make sure that the requirements as set forth in 
the royal decree of October lo, 1895, No. 627, have been 
compHed with. 

The said decree estabhshes the rules for the balancing 
of deposits in accounts current abroad, reckoned as 
reserve, as per the terms of said article 11. 

ARTICLE 120. 
[Article 14, Appendix P to the law of August 8, 1895, No. 486.] 

The inspectorate-general shall, at short intervals, see 
that the regulations regarding the movement of the bills 
are strictly observed. 

The said inspectorate shall make not less than twice 
each year, and even in the interval between two decades, 
a complete verification, without notice and simultaneously, 
of the cash on hand in all the branches, subbranches, 
and agencies of the bank. 

Such proceedings can not, for any cause, be postponed 
to any other day than that fixed beforehand. If more 
than one day is required for their completion they shall be 
continued without interruption taking such precautions 
as may be deemed necessary for their satisfactory per- 
formance. 

The reports on these verifications, with a recapitulation, 
shall be transmitted promptly to the inspectorate-general 
for possible remarks to the banks. 

For the purpose of these verifications the minister of 
the treasury may secure information, besides that fur- 
nished by the intendants of finance, from all the members 
of their staff. 



324 



Law Relating to Banks of Issue 

ARTICLE 121. ~ 
[Article 15, Appendix P to the law of August 8, 1895, No. 486.] 

The inspectorate-general must make certain special 
verifications in the branches and sub-branches of the 
banks, according to such rules as shall be ordained by 
ministerial decree. 

The purpose of such verifications shall be principally to 
ascertain the nature (i) of the metallic and paper currency ; 
(2) of public effects on deposit, being the property of third 
parties, or representing the direct investments of the 
banks; (3) of the portfolios; and further to see that all 
the operations are conducted in accordance with the law. 

The directors of the above-mentioned branches and sub- 
branches must submit to the inspectors the registers and 
documents necessary for their discharge of the duties 
with which they are intrusted. 

ARTICLE 122. 
[Article i6, Appendix P to law of August 8, 1895.. No. 486.] 

Besides the powers conferred by the foregoing articles, 
the inspectorate-general possesses also all those specified 
in the special statute as per article 4. 

Section IV. — Periodical and extraordinary inspections. 

ARTICLE 123. 

[Article 15, law of August 10, 1893, No. 449. Article 17, Appendix P to the 
law of August 8, 1895, No. 486. Article 36, same law.] 

At the end of every three years the minister of treasury 
shall order an extraordinary inspection of the banks of 
issue, through state officials who have not participated in 
previous inspections of the respective banks. 



325 



National Monetary Commission 

The reports of such inspections shall be presented to 
Parliament within three months. 

ARTICLE 124. 
[Article 18, Appendix P to the law of August 8, 1895, No. 486.] 

These inspections have as their object: 

(a) To ascertain the quantity and quality of metallic 
currency, of bills of exchange, and of accounts current on 
foreign countries, included in reserve according to the law. 

(6) To verify the actual quantity of notes in circulation 
and of those on hand, according to their different classes, 
taking separate account of notes serving as working fund 
and those withdrawn as worn out, and canceled but not 
yet destroyed, in conformity with the regulations in the 
before-mentioned article 4. 

(c) To ascertain whether, in the exchange of notes with 
the public and among the banks themselves, the latter have 
followed the rules established by the laws and regulations 
in force. 

{d) To certify the exact correspondence of the records 
contained in the books of the banks with the reports and 
statements transmitted to the Government. 

{e) To verify the nature of the operations of the banks 
as regards the provisions contained in Title IV. 

(/) To certify the observance, on the part of the Bank 
of Italy, of the prescriptions of the Commercial Code, and 
particularly of those contained in articles 146 and 181, 
and the actual existence of the respective free capital of 
the banks of Naples and Sicily. 

{g) To ascertain whether within the two years, as pre- 
scribed by article 60, the bonds, securities, and various 



326 



Law Relating to Banks of Issue 

movable properties specified therein which became prop- 
erty of the banks after August 25, 1893,^ as a result of 
their credits have been liquidated; and whether within 
three years, as specified by the same article, the liquida- 
tion has been effected of the operations relative to over- 
due credits guaranteed by mortgage or by transfer of 
movable properties. 

{h) To examine all other conditions intended to assure 
the exact and complete fulfillment of the law. 

{{) To make a general examination of the conduct of 
the banks and of the functions which they perform affecting 
either the public interest or the treasury. 

ARTICLE 125. 
[Article 20, Appendix P to the law of August 8, 1895, No. 486.] 

The director of the bank, or whoever acts in his stead, 
and his subordinates must furnish all the explanations 
and exhibit all the books and documents required by the 
state officials charged with the inspection. The director or 
his substitute may cause to be present at the inspection the 
head of the department under inspection or verification. 

ARTICLE 126. 
[Article 21, Appendix P to the law of August 8, 1895, No. 486.] 

The public officials charged with the extraordinary 
inspections, as per article 123, must submit, within one 
month from the completion of the inspection, a detailed 
account of the results of the said inspection. 

In case the conditions revealed by the inspection are 
serious, notice thereof must be given immediately to the 
minister himself. 

^ Date of the enforcement of the law of Aug. 10, 1893, No. 449. 



327 



National Monetary Commission 

ARTICLE 127. 
[Article 22, Appendix P to the law of August 8, 1895, No. 486.] 

The minister of the treasury may at any time order 
extraordinary inspections, either general or special, of the 
banks of issue. 

ARTICLE 128. 

[Article 23, Appendix P to the law of August 8, 1895, No. 486.] 

When ordinary or extraordinary inspections and special 
verifications reveal infractions specified in articles 21, 62, 
and 137, the officials charged with such inspections and 
verifications must make out a proper report and transmit 
the same immediately to the minister of the treasury, who 
will take action as provided in said articles. 

Whenever acts are revealed of a criminal character the 
officials must report same to the judicial authorities and 
give immediate notice thereof to the aforesaid minister. 

ARTICLE 129. 

[Article 24, Appendix P to the law of August 8, 1895, No. 486.] 

Having ascertained the facts as per articles 138, 139, 
and 140, the minister of the treasury shall make regular 
report to the judicial authorities for infliction of the punish- 
ments specified by those articles. 

ARTICLE 130. 

[Article 25, Appendix P to the law of August 8, 1895, No. 486.] 

Not later than the month of May of each year the 
minister of the treasury shall submit to Parliament a 
detailed account of the conduct of the banks of issue and 
of the state and bank circulations during the previous 
calendar yea 



328 



Law Relating to Banks of Issue 

ARTICLE 131. 
[Article 26, Appendix P to the law of August 8, 1895, No. 486,] 

Until the reestablishment of the fiduciary circulation of 
bank notes, the inspectorate-general shall see that the 
official rate of discount and that of interest on advances 
are constantly maintained by all the banks of issue, with- 
out any variations not sanctioned by the law. 

TiTivE IX. — General Regulations. 

ARTICLE 132. 
[Article 17, law of August 10, 1893, No. 449.] 

Members of Parliament can not hold any office in the 
banks of issue, whether with or without salary or com- 
pensation. 

ARTICLE 133. 

[Article i, law of August 10, 1893, No. 449.] 

The charter of the Bank of Italy is approved by royal 
decree. 

This approval and the insertion of the said charter in 

the official collection of laws and decrees of the Kingdom 

shall take the place of the publications and transcriptions 

prescribed in the Code of Commerce for joint stock 

companies. 

ARTICLE 134. 

[Article 15, law of August 10, 1893, No. 449. Article 9, Appendix T to the 
law of August 8, 1895, No. 486.] 

The appointment of the director-general of the Bank of 
Italy must be approved by the Government. 

The directors-general of the Bank of Naples and the 
Bank of Sicily are appointed by royal decree upon the 
recommendation of the minister of the treasury with the 
consent of the council of ministers. 



329 



National Monetary Commission 

ARTICLE 135. 

[Article 18, Appendix B to the law of January 17, 1897, No. 9, and article 

10 of the same law.] 

The rules governing the enforcement of articles 12, 15, 
80 to 82, 84, 87, and 89, guaranteeing the most rigorous 
administration of the Bank of Naples and its realty credit 
department, the proper balance of their ledgers, and the 
restriction of credits to those inscribed in the proper lists, 
called 'Xastelletti," and for sums not greater than those 
prescribed in the said lists, are established by regulations 
approved by royal decree.^ 

The same decree also provides for a permanent treasury 
inspector to supervise the liquidation of the said realty 
credit and to see that all the safeguards ordered to guar- 
antee the provisions relating to the said realty credit are 
vigorously enforced. 

Another royal decree ^ establishes the rules for agree- 
ment between the Bank of Naples and the other banks of 
issue for the reciprocal exchange of advices regarding the 
credits granted to any one house. 

The regulations of the Bank of Naples,^ in the part 
concerning the personnel, shall determine the responsi- 
bility of officials of all grades and their respective duties, 
except in the cases considered in articles 138, 139, and 140. 

a Royal decree of Apr. 22, 1897, No. 141, modified by royal decree of 
Nov. 19, 1905, No. 553. 

& Royal decree of June i, 1897, No. 172. 

c Approved by royal decree of Aug. 2, 1908, No. 529. 



330 



Law Relating' to Banks of Issue 

ARTICLE 136. 

[Article 22, law of April 7, 1881, No. 133. Article 4, law of August 10, 1893, 
No. 449. Article 10, Appendix D to the law of Januar}^ 17, 1897, No. 9. J 

Clearing houses established by virtue of the royal decree 
of March 19, 1881, No. 220, or which may be established 
thereafter, shall admit a representative of the State 
Treasury and one representative of the branches and sub- 
branches of the banks of issue, of the savings banks, of 
banks of discount and people's banks, and of the principal 
bankers, for the exchange of notes payable to bearer at 
sight and for the clearance of other bank paper 

The conduct of clearing houses, where this is vested 
directly in the chambers of commerce, may by these be 
intrusted, with the consent of the Government, and at 
their own risks and perils, to a single bank of issue, if 
said bank already exercises such functions. 

The clearing houses which may be established in cities 
where there are branches and subbranches of any of the 
banks of issue may be intrusted by the local chamber of 
commerce to such banks of issue, united in association, 
as may have branches or subbranches at said place. 

Title X. — Penalties. 

ARTICLE 137. 
[Article 16, law of August 10, 1893, No. 449.] 

By royal decree, upon the recommendation of the 
minister of the treasury, with the consent of the council 
of ministers, the power of issue may be suspended or 
revoked in the case of any bank which may violate the 
provisions of the law or of its own charter. 



331 



National Monetary Commission 

The managers of the banks of issue, excepting as pro- 
vided by article 149 of the Code of Commerce, are liable, 
collectively and individually, to the shareholders of the 
bank and all other parties for nonfulfillment of the pro- 
visions of the present law, statutes, and regulations, 
apart from the civil and criminal actions arising out of 
other laws. 

An action against the management of the Bank of Italy 
may be instituted by one or more shareholders provided 
that such shareholder or shareholders have at least 1,000 
shares. 

ARTICLE 138. 

[Article 20, law of August 10, 1893, No. 449.] 

In case of transgression of the provisions of the present 
law any employee of the banks of issue who shall affirm 
what is false or conceal the truth, thereby misleading the 
officials of supervision or inspection with the object of 
concealing irregular conditions of said banks, forbidden 
operations, or actions that may involve the responsibility 
of another, shall be punished with from three months' 
to four years' imprisonment and with temporary inter- 
diction from holding public office. 

ARTICLE 139. 
[Article 20, law of August 10, 1893, N^- 449-1 

Whoever, while acting as supervisor or inspector of 
the banks of issue, shall affirm what is false or conceal 
the truth, for purposes indicated in the foregoing article 
shall be punished with from one to five years' imprison- 
ment and with temporary interdiction from holding 
public office. 



333 



Law Rel ating to Banks of Issue 

ARTICLE 140. 
[Article 20, law of August 10, 1893, No. 449.] 

Whoever shall effect the issue of bank notes that are 
not manufactured and issued according to the rules of 
article 4, or put in circulation bank notes which ought 
to have been cancelled or burned, shall be punished 
with from three to ten years' imprisonment and with 
temporary interdiction from holding public office. 

ARTICLE 141. 
[Article 30, law of April 30, 1874, No. 1920.] 

Firms and associations not included in this law, and 

individuals, who shall issue notes or other equivalent 

paper payable to bearer at sight, shall be subject to 

a fine equal to the amount of the notes or other paper 

issued. 

ARTICLE 142. 

[Article 30, law of April 30, 1874, No. 1920. Law of July 5, 1908, No. 388.] 

It is forbidden to manufacture, to issue, or to put in 
circulation, for any purpose, any kind of notes or printed 
forms imitating or resembling, wholly or partially, on the 
face or back, bank notes or any other bank paper, 
under a penalty of 50 to 500 lire against those who shall 
manufacture them or put them on sale. 

The printed forms and the plates shall in every case 
be confiscated, regardless of ownership, and shall be 
destroyed. 



333 



National Monetary Commission 
TiTivE XI. — Temporary ReguIvATions. 

ARTICLE 143. 

[Article 13, law of August 10, 1893, No. 449. Article 6, law of July 7, 1902, 
No. 290. Article 4, law of July 7, 1902, No. 318. Article 2, law of July 5, 
1908, No. 351.] 

The credits of the banks of issue aheady classed as 
" immobilizations," and which, under contracts previous to 
June 30, 1893, by their terms of currency or by provision 
of law, can not be liquidated till 31st of December, 1908, 
shall be liquidated as soon as they become collectible 
under their special contracts or by law. 

ARTICLE 144. 
[Article 5, law of July 7, 1902, No. 290.] 

The Bank of Italy and the Bank of Naples are authorized 
to grant to the Society for the Sanitation of Naples 
temporary advances, guaranteed as prescribed by law, 
bearing interest at 3.50 per cent, up to a total sum not 
exceeding the actual value of the public works already 
executed, to form a contribution of 7 millions for the com- 
pletion of the said works. 

ARTICLE 145. 

[Article 7, law of July 7, 1902, No. 290. Article 16, law of January 17, 1897, 

No. 9.] 

The Bank of Italy and the Bank of Naples, for the 
purpose of the liquidation and reimbursement of their re- 
spective credits in connection with the Society for the 
Sanitation of Naples, shall, until the end of the year 1913. 
be entitled to a reduction of three-quarters of the tax for 
registration of sales, purchases of immovable property, or 
transference of credits and other fiscal proceedings as per 



334 



Law Relating to Banks of Issue 

article 2 of the law of December 26, 1901, No. 516, regard- 
less of the dates of their respective mortgages. 

Furthermore, the said institutions shall, until the same 
date, be entitled to a reduction of one-half of the regis- 
tration stamps and taxes due for processes and judgments 
in the collection of their above-mentioned credits. 
Witnessed by order of His Majesty : 

(Signed) Tedesco, 

The Minister Secretary of State for the Treasury. 



39781°— II 22 335 



APPENDIX I. 

ROYAL DECREE OF OCTOBER lo, 1895, No. 627, FIXING THE 
REQUIREMENTS FOR THE ADMISSION OF BILLS OF EX- 
CHANGE ON FOREIGN COUNTRIES AND CREDITS IN CUR- 
RENT ACCOUNTS ABROAD AS PART OF THE RESERVE OF 
BANFS OF ISSUE. 

[Published in the Official Gazette of the Kingdom October 24, 1895, No. 

251.] 

Humbert I, by Grace of God and by Will of the 
Nation King of Italy. 

In pursuance of article 6 and article 11 of the law of 
August 10, 1893, No. 449, for the reorganization of the 
banks of issue; and 

In pursuance of article 31 of the law of August 8, 1895, 
No. 486, regarding finances and treasury; and 

In pursuance of the text of the regulations for super- 
vision of the banks of issue, constituting Appendix P, 
approved by article 26 of the aforenamed law of August 
8, 1895; and 

With the consent of the banks of issue; 

Upon the proposal of our secretary of state for the 
treasury : 

We have decreed, and do hereby decree: 

ARTICLE i.« 

The bills of exchange on foreign countries which, ac- 
cording to the terms of, and within the limits specified 

o For articles 6 and 11 of the law of August 10, 1893, No. 449, must be sub- 
stituted articles 11 and 19 of the new text of the law. • 



336 



Law Relating to Banks of Issue 

in, articles 6 and ii of the law of August lo, 1893, No. 
449, may be included in the reserve covering the circula- 
tion, must be disposable abroad, on the day when such 
bills become due, in gold specie or in money at the full 
value of the Latin monetary union. 

These bills of exchange, duly accepted by the agent 
abroad, must fall due not later than three months from 
the date when' they begin to form part of the portfolio 
for the reserve of the banks of issue, and must be furnished 
with at least two first-class signatures. 

ARTICLE 2. 

Within fifteen days from the publication of the present 
decree, and successively at the end of every six months, 
the banks of issue shall transmit to the treasury a list of 
institutions and banking firms, not direct correspondents 
of the treasury, whose signatures they consider as being 
of first class, as per the foregoing article. 

The minister of the treasury shall at all times have the 
right to order the elimination of one or more names of 
institutions or firms from the said list. 

ARTICLE 3. 

To form part of the quota of reserve, within the limits 
specified in article i of the present decree, are admitted 
the bonds of the British treasury, and, in general, treas- 
ury bonds of foreign states, the same being payable in 
gold or at the full value of the Latin monetary union, 
provided that not more than three months intervene be- 
tween the date of acquisition by the banks of issue and 
the date when the said bonds fall due. 



337 



National Monetary Commission 

ARTICLE 4. 

As part of the reserve covering the circulation of the 
banks of issue, within the Hmits specified in article i, are 
admitted the credits in current account, perfectly dispos- 
able in gold or at the full value of the Latin imion, at 
sight or for a term not exceeding fifteen days, which the 
banks of issue may have abroad with the large banks of 
issue and bankers in direct correspondence with the 
treasury. 

The banks of issue availing themselves of this provi- 
sion must transmit to the treasury detailed certificates 
proving the actual existence of the said credits, issued by 
the institutions or by the debtor bankers, at the close of 
business on the loth, 20th, and the last day of each 

month. 

ARTICLE 5. 

The said certificates must bear a statement of the actual 
credit of the Italian bank of issue at the close of business 
on the loth, 20th, and the last day of each month; the 
kinds of money in which the credit is payable ; the declara- 
tion that the said credit is payable entirely at sight or not 
later than fifteen days from the date when notice for re- 
payment has been given; the signature of the person 
legally authorized to represent the institution or firm issu- 
ing the certificate. 

The banks of issue that shall, by means of assignments 
or in any other manner, have disposed of a credit in 
accoimt current abroad, when their respective corre- 
spondents shall have been unable to receive notice of it at 
the time the certificate was issued, must make special 



338 



Law Relating' to Banks of Issue 

note of the fact upon the said certificate, for the precise 
determination of the amounts in account current perfectly 
disposable as per the terms of the preceding article. 

ARTICLE 6. 

The relation between foreign moneys and gold and 
silver specie at the full value of Italian coin shall be 
established by agreement between the minister of the 
treasury and the banks of issue. 

ARTICLE 7.« 

The central office of inspection for the supervision of 
the circulation of the banks of issue shall ascertain, at 
short intervals, whether the provisions contained in the 
foregoing articles have been strictly observed, and it may 
examine the records and correspondence of the institutions 
in order to certify the real existence of the active deposits 
abroad represented by the certificates as per articles 
4 and 5. 

We command that the present decree, sealed with the 
state seal, be placed in the official compendium of the 
laws and decrees of the Kingdom of Italy, binding upon 
all persons whose duty it is to observe it and to enforce 
the observance thereof. 

Given at Monza on this loth day of October, 1895. 

Humbert. 

Sidney Sonnino. 
Witness the keeper of the seals f 
V. Calenda di Tavani. 

o In article 113, of the new Text of law, the words "inspectorate-general" 
must be substituted for the words "central office of inspection." 



339 



National M o n et ar y Commission 

APPENDIX II. 

ROYAL DECREE OF OCTOBER 25, 1895, NO. 639, AUTHORIZING 
THE BANKS OF ISSUE TO DISCOUNT BILLS OF EXCHANGE 
BEARING FIRST CLASS SIGNATURES AT LESS THAN THE 
NORMAL RATE. 

[Published in the Official Gazette of the Kingdom November 6, 1895, 

No. 261.] 

Humbert I, by Grace of God and by Will of the 
Nation King of Italy. 

In pursuance of article 4 of the law of August 10, 1893, 
No. 449, for the reorganization of the banks of issue; and 

In pursuance of article 35 of the law of August 8, 1895, 
No. 486, providing for the finances and the treasury; and 

In pursuance of article 26, Appendix P, approved by 
article 26 of the said law of August 8, 1895; and 

Upon the proposal of the minister of the treasury; 

We have decreed and do hereby decree: 

ARTICLE i.« 

The banks of issue, with due consideration of the funds 
at their disposal and the condition of the market, and 
provided the amount in circulation of their respective 
notes does not exceed the normal limits laid down in article 
2 of the law of August 10, 1893, No. 449, are hereby author- 
ized to discount at a rate less than the normal rate — to be 
determined every three months by ministerial decree, in 
agreement with the banks of issue, but which can be in no 
case less than 3K per cent — bills of exchange presented 

« For article 2 of the law of August 10, 1893, No. 449, must be substituted 
article 6 of the new Text. 

For the determination of the reduced rate see article 8 of the aforesaid 
Text. 



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Law Relating to Banks of Issue 

and guaranteed by commercial and banking signatures of 
the first class, which shall fall due not later than three 
months from the date when the discotmt is made. 

ARTICLE 2. 

Absolutely excluded from this concession, as per the 
foregoing article, are bills of exchange renewed either 
totally or partially, extending wholly or partially the 
payment of the debt, as well as those bills of exchange 
resulting from the extinction of the current debt. 

ARTICLE 3. 

The decisions of the discount committee regarding the 
operations treated in the present decree, must be re- 
corded in separate reports and must be adopted by at 
least an absolute majority of the members composing 
the said committee. 

The director of the branch {sede) or subbranch {suc- 
cursale) may suspend such a decision, referring the same 
without delay to the Board of Directors for final decision. 

ARTICLE 4.« 

The portfolio of bills of exchange discounted in con- 
formity with article i must be kept separate and dis- 
tinct both from the ordinary portfolio and from that for 
the discount operations as per the third paragraph of 
article 4 of the law of August 10, 1893, No. 449. 

« For the words "third paragraph of article 4 of the law of August 10, 
1893, No. 449" must be substituted "article 28 (3d and 4th paragraphs) of 
the text." 



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National Monetary Commission 

ARTICLE 5.« 

The portfolio of the bills of exchange discounted in 
accordance with the terms of the present decree shall be 
subject to verifications by the central inspection bureau 
of the treasury. The officials charged with the verifi- 
cations shall be at liberty to examine the special records 
of decisions of the discount committee with a view to 
certifying their correctness and to comparing them with 
records of the said portfolio. 

We command that the present decree, sealed with the 
State seal, be placed in the official compendium of the 
laws and decrees of the Kingdom of Italy, binding upon 
all the persons whose duty it is to observe it and to 
enforce the observance thereof. 

Given at Monza on this 25th day of October, 1895. 

Humbert. 

Sidney Sonnino. 
Witness the keeper of the seals : 

V. C AGENDA DI TaVANI. 

«In article 113 of the new text the words "inspectorate-general" must 
be substituted for "central inspection bureau." 



34a 



Law Relating to Banks of Issue 

APPENDIX III. 

ROYAL DECREE OF FEBRUARY 9, 1908, NO. 62, REGULATING 
THE DISCOUNT BY BANKS OF ISSUE OF BILLS ISSUED BY 
THE OBLIGATORY ASSOCIATION FOR THE SICILIAN SUL- 
PHUR INDUSTRY TO THE AUTONOMOUS BANK OF MINING 
CREDIT FOR SICILY. 

[Published in the Official Gazette of the Kingdom February 29, 1908, 

No. 50.] 

Victor Emmanuel III, by Grace of God and by the 
Will of the Nation King of Italy. 

In pursuance of the article 13 of the law of December 
31, 1907, No. 804; and 

With the consent of the council of ministers; and 

Upon the proposal of our secretaries of state for agri- 
culture, industry, commerce, and the treasury, and in 
agreement with the minister of finance; 

We have decreed and do hereby decree: 

ARTICLE I. 

The obligatory Sulphur Association of Sicily may 
issue, in favor of the Autonomous Bank of Mining Credit, 
bills of exchange ^to an amount not exceeding three- 
fourths of sums for which it may by regular contract be 
creditor to any party for sales of sulphur. 

Upon such bills of exchange there must be indicated 

the date and the terms of the contracts and the quantity 

of the sulphur sold. 

ARTICLE 2. 

The amount of such bills of exchange shall be turned 
over by the Autonomous Bank of Mining Credit to the 
Bank of Sicily, which is the cashier of the sulphur asso- 
ciation, and entered by the said bank in the account 



34: 



National Monetary Commission 

current as per article 12, second paragraph, of the royal 
decree of July 22, 1906, No. 378, to be distributed among 
the producers in the association and among other inter- 
ested parties according to the rules in force. 

ARTICLE 3. 

The banks of issue are authorized to discount at a 
preferential rate such bills of exchange for a term not 
longer than four months. 

On the price which, by the terms of the contract, shall 
be paid by the buyer upon delivery of the mineral, the 
institution holding the bills has the right of preference up 
to the amount of the credit due on the said bills. 

In pursuance of the preference, the part of the price 
equal to that advanced to the association by the institu- 
tions must be placed in a special account current which 
the Bank of Sicily, as cashier of the association, shall 
hold at the disposition of the contributing institutions, 
after regular notification of their credit has been made to 
the said bank in the aforesaid capacity. 

ARTICLE 4. 

« 

The banks of issue are likewise authorized to discount 
at preferential rates of interest bills at not more than 
four months, issued by the Autonomous Bank of Mining 
Credit, on receipt of certificates of deposits and warrants 
on sulphur, in amount equal to the value of bills to be 
discounted. 

The Bank of Mining Credit and the Bank of Sicily in 
its capacity as cashier of the sulphur association, shall 
fix by agreement the rules for the eventual replacement 



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Law Relating to Banks of Issue 

of any certificates of deposit and warrants which may 
become void before the discounted bills fall due, and for 
insuring the payment of the said bills. 

We command that the present decree, sealed with the 
state seal, be placed in the official compendium of the 
laws and decrees of the Kingdom of Italy, binding upon 
all persons whose duty it is to observe it and to enforce 
the observance thereof. 

Given at Rome on this 9th day of February, 1908. 

Victor Emmanueiv. 

GlOIvlTTI. 

Carcano. 
F. Cocco-Ortu. 
Lacova. 
Witness the keeper of the seal: 

Orlando. 



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LEAg'i 



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